"V^ 


BANKING  FOR  BEGINNERS 


By 
J.  F.  EBERSOLE 

With  Acknowledgments  to  the  University  of  Minnesota  and 

Minneapolis  Chapter  of  the  American 

Institute  of  Banking 


•.) 


American  Institute  of  Banking 

Section  American  Bankers  Association 
Five  Nassau  Street  New  York  City 


Copyright  1917 
By  the 

American    Institute    of    Banking 


CONTENTS 


PRELIMINARY  COURSE 

Chapter  Page 

I.  Elementary  Essentials   5 

II.  Elements  of  Contracts 33 

CYCLE  COURSE 

III.  Drafts  and  Acceptances 61 

^  IV.         Promissory  Notes  and  Discount 85 

V.  Deposits  and  Checks 117 

VI.  Exchanges  and  Transfers 153 

VII.  Bills  of  Lading  and  Other  Documents 173 

VIII.  Special  Problems  in  Law 195 

IX.  Bank  Departmentization   225 

X.  Federal  Reserve  System 265 


A  successful  banker  is  composed 
of  about  one-fifth  accountant,  two- 
fifths  lawyer,  three-fifths  political 
economist,  and  four-fifths  gentle- 
man and  scholar — total  ten-fifths — 
double  size.  Any  smaller  person 
may  be  a  pawnbroker  or  a  promoter, 
but  not  a  banker. — George  E.  Allen. 


BANKING  FOR  BEGINNERS 


CHAPTER  I 

Elementary  Essentials 

THE  beginner  in  a  bank  usucilly  discovers 
that  he  does  not  have  at  his  command  a 
sufficient  knowledge  of  commercicd  docu- 
ments and  banking  practice.  Later  on,  also,  he 
often  realizes  that  he  did  not  start  out  with  the 
best  principles  of  personal  conduct  or  a  proper  atti- 
tude or  view  of  his  own  job.  It  is  the  object  of  this 
book  to  help  the  beginner  in  acquiring  these  neces- 
sary things  at  the  earliest  possible  moment.  He 
may  then  become  a  very  efficient  helper  within 
a  short  time.  The  managers  of  banks  who  are 
obliged  to  train  beginners  also  find  this  to  be  a 
problem  of  some  difficulty  and  considerable  ex- 
pense. It  has  been  suggested  that  the  training  of 
the  average  beginner  costs  a  bank  a  total  of  about 
two  hundred  dollars  in  the  form  of  unearned 
wages  at  the  start,  valuable  time  consumed  by  the 
officers  or  men  in  the  bank  who  supervise  the  in- 
struction of  beginners,  losses  through  errors  due 
to  ignorance,  and  waste  due  to  inefficient  utiliza- 
tion of  time  and  energy. 

SPECIAL  INSTRUCTION  FOR  BEGIN- 
NERS.— While  the  standard  study  course  of  the 
American  Institute  of  Banking  is  recognized  as 

5 


6  BANKING    FOR    BEGINNERS 

the  essential  basis  of  banking  education,  experience 
has  demonstrated  the  fact  that  something  of  more 
elementary  character  is  needed  to  meet  the  re- 
quirements of  beginners  in  the  banking  business. 
Several  of  the  leading  Institute  chapters  have  ex- 
perimented with  educational  devices  aimed  to  meet 
this  need.  Materials  and  methods  thus  developed, 
however,  need  to  be  assembled,  brought  down  to 
date,  and  preserved  in  a  form  available  for  the 
benefit  of  all  beginners.  The  experience  of  Minne- 
apolis chapter  appears  to  be  particularly  available 
at  this  time  for  this  purpose.  The  valuable  work 
done  by  O.  Howard  Wolfe  in  his  book  entitled 
"Elementary  Banking"  has  been  liberally  utilized 
in  the  preparation  of  this  book.  Many  of  Mr. 
Wolfe's  ideas,  and  even  some  of  his  language,  in- 
evitably have  been  incorporated  in  certain  chap- 
ters of  this  work.  When  the  younger  bank  men 
of  Minneapolis  decided  to  attempt  a  solution  of 
the  problem  of  breaking  in  the  beginner,  prelim- 
inary meetings  were  held  and  attended  by  several 
well  known  bank  officers,  who  are  members  of  the 
chapter,  and  a  number  of  representative  chapter 
men.  The  most  promising  of  the  young  men  in  the 
banks  were  invited  to  these  conferences  and  asked 
to  describe  their  difficulties  and  suggest  what  could 
be  done  for  other  beginners.  After  considerable 
discussion  it  was  decided  that  classroom  work  dur- 
ing the  regular  working  hours  would  be  the  best 
method  of  accomplishing  the  desired  end.    A  com- 


BANKING    FOR    BEGINNERS  7 

mittee  of  practical  bankers  appointed  for  the  pur- 
pose outlined  matters  to  be  taught,  but  the  necessity 
of  arranging  such  matters  in  teachable  form,  and 
the  further  necessity  of  placing  the  work  in  charge 
of  a  trained  instructor,  were  quickly  recognized. 
Valuable  service  was  rendered  in  this  connection 
by  the  staff  of  the  General  Extension  Division  of 
the  University  of  Minnesota.  Under  the  plan  de- 
vised classes  were  held  on  four  days  of  each  week 
for  two  consecutive  hours  each  day  and  continuing 
until  late  in  the  summer  months.  The  work  was 
resumed  after  the  summer  vacations  were  com- 
pleted in  the  banks,  and  continued  with  satisfac- 
tory results.  The  materials  used  for  class  pur- 
poses have  undergone  considerable  change  since 
the  opening  day.  The  persons  in  charge  have  not 
hesitated  to  modify  or  rearrange  and  add  to  or  sub- 
tract from  the  material  whenever  it  seemed  desir- 
able to  do  so.  This  book  represents  an  elaboration 
of  the  course  of  study  thus  developed,  and  is  suit- 
able for  (1)  junior  classes  in  Institute  chapters;  (2) 
study  classes  in  individual  banking  institutions; 
(3)  personal  study  by  individual  students. 

PRELIMINARY  STUDY  AND  CYCLE 
COURSE.  —  It  is  important  to  direct  attention 
to  one  development  in  the  use  of  the  materials  in 
this  book.  Certain  things  which  every  employe 
should  know  from  the  very  start  are  presented  in 
the  first  two  chapters,  and  should  be  prescribed 
to  every  student  before  he  is  permitted  to  attempt 


8  BANKING    FOR    BEGINNERS 

what  follows.  Subsequent  chapters  of  the  book 
may  be  taken  up  in  any  order  desirable,  because 
they  contain  information  that  is  not  absolutely 
needed  during  the  first  days  of  the  novice  in  the 
bank.  When  the  course  opens  the  first  students 
are  put  through  the  preliminary  chapters  and  then 
started  upon  the  advanced  chapters  (Cycle  Course). 
When  a  number  of  new  students  are  enrolled  the 
newcomers  are  put  through  the  preliminary  chap- 
ters at  once,  and  then  are  put  into  the  cycle  course 
at  whatever  point  may  have  been  reached  at  that 
time.  The  newcomer  remains  until  he  has  made  a 
complete  cycle  of  all  the  chapters  in  the  advanced 
part. 

MESSENGERS  AND  OTHER  BANK  MEN. 
— This  book  will  refer  to  the  beginner  as  a  "mes- 
senger." All  bank  employes  are  not  messengers, 
but  the  duties  and  responsibilities  of  the  messenger 
are  such  that  all  bank  men  will  do  well  to  study 
the  work  of  such  beginners  and  to  learn  of  their 
problems.  The  lack  of  one  simple  fact  may  in- 
fluence an  important  decision.  The  elements  of 
bank  administration  are  therefore  worth  most  care- 
ful study.  It  should  be  considered  a  great  ad- 
vantage to  begin  at  the  bottom  in  the  banking 
business.  It  is  only  by  beginning  at  the  bottom 
that  a  man  can  become  familiar  with  all  the  details 
of  the  business.  And  later,  when  he  becomes  a 
department  head  or  officer,  the  man  who  has  begun 
at  the  bottom  will  understand  his  duties  better  and 


BANKING    FOR    BEGINNERS  9 

will  know  what  to  expect  of  other  men.  The  mes- 
sengership  is  a  golden  opportunity  to  learn  of  mod- 
ern business  by  observing  local  business  practices, 
documents  and  men.  This  is  a  privilege  that  may 
be  enjoyed  only  in  the  duties  of  a  messenger  unless 
one  later  becomes  a  part  of  the  credit  department, 
which  few  men  do. 

THREE  NEEDS  OF  THE  BEGINNER.— 
There  are  three  important  things  for  the  messenger 
to  acquire  in  his  first  week.  These  are  (1)  a  de- 
sire to  make  the  business  men  of  the  city  like  his 
bank;  (2)  a  desire  to  secure  merited  personal  ad- 
vancement in  his  own  bank;  (3)  a  certain  amount 
of  definite  information  concerning  adding  machines 
and  the  duties  of  messengers  on  routes. 

HOW  CAN  A  MESSENGER  MAKE  BUSI- 
NESS MEN  LIKE  HIS  OWN  BANK?— Messen- 
gers have  an  important  influence  on  the  ideas  of 
business  men  concerning  particular  banks.  Many 
people  judge  a  bank  by  its  messengers  because  they 
see  the  messengers  often  and  may  never  actually 
come  to  the  banks  to  see  anyone  else.  While  the 
officers  do  often  meet  the  public  in  the  making  of 
loans  and  other  business,  yet  the  messengers  are 
equally  important  from  the  standpoint  of  appear- 
ances, for  they  assist  in  collecting  the  obligations 
due  to  a  bank.  It  is  equally  as  important  to  make 
a  good  impression  when  collecting  as  when  lending. 

(1)  The  first  essential  in  making  a  good  im- 
pression is  cleanliness.    A  clean  collar,  with  regular 


10  BANKING    FOR   BEGINNERS 

brushing  of  the  clothes  and  shoes,  is  more  impor- 
tant than  the  quaUty,  style  or  expensiveness  of 
one's  attire.  Customers  consider  smoking  as  ques- 
tionable in  a  young  man.  The  bad  impression  made 
upon  a  customer  by  smoking  has  been  said  to  be 
a  sufficient  cause  for  losing  an  account.  And  the 
beginner  in  banking  needs  to  be  informed  that  the 
officers  who  smoke  usually  prefer  the  young  man 
who  does  not  smoke.  As  the  personal  representa- 
tives of  the  bank,  therefore,  messengers  should  con- 
sider their  own  personal  appearance  equally  as  im- 
portant as  the  personal  appearance  of  an  officer. 

(2)  The  second  essential  is  courtesy  and  polite- 
ness. The  essence  of  courtesy  is  to  treat  every 
individual  with  equal  kindness  and  consideration. 
What  may  appear  to  a  messenger  to  be  a  very 
insignificant  transaction  with  a  very  insignificant 
individual  may,  as  a  matter  of  fact,  influence  a  very 
large  transaction  for  or  against  his  own  bank.  It 
is  not  uncommon  to  find  that  a  person  of  insignifi- 
cant appearance  is  really  a  person  of  some  conse- 
quence. So  much  of  modern  business  is  carried 
on  over  the  telephone  that  the  customers  of  a  bank 
may  very  easily  form  their  opinion  of  the  bank 
from  the  way  in  which  they  are  treated  in  a  tele- 
phone conversation.  The  fact  that  the  person  with 
whom  you  are  talking  over  the  telephone  cannot 
see  your  face  makes  it  especially  important  that 
your  words  be  selected  carefully  and  that  your  gen- 
eral attitude  be  that  of  persuasive  kindliness.    No 


BANKING    FOR   BEGINNERS  11 

one  should  attempt  to  telephone  concerning  impor- 
tant business  matters  without  planning  carefully 
in  advance  what  is  going  to  be  said. 

(3)  A  third  essential  is  never  to  give  out  any 
information  concerning  the  affairs  of  the  bank. 
Business  men  do  not  like  to  have  their  affairs 
known  in  great  detail  by  their  competitors  or  by 
other  business  men.  The  customer's  relation  with 
his  bank  is  one  of  great  confidence,  similar  to  his 
relationship  with  his  doctor  or  his  lawyer.  The 
men  who  represent  banks  must  therefore  be  always 
on  their  guard  to  avoid  giving  confidential  infor- 
mation into  the  hands  of  persons  who  should  not 
receive  it.  Never  answer  a  question  concerning 
another  business  man's  affairs  which  have  been 
handled  through  your  bank.  Do  not  boast,  either 
upon  the  street  or  at  your  home,  concerning  any 
transaction  which  you  may  have  handled.  Con- 
sider yourself  the  confidential  trustee  of  the  bank's 
information.  Nothing  will  drive  away  a  customer 
so  quickly  as  to  find  out  that  he  can  secure  informa- 
tion concerning  others,  because  he  will  then  suspect 
that  others  can  secure  information  concerning  him. 

HOW  MAY  BANK  MESSENGERS  SECURE 
PERSONAL  ADVANCEMENT?  —  Employes 
who  are  working  for  banks  are  being  watched  every 
day  to  see  if  they  are  going  to  develop  into  men 
of  character  and  capacity.  Every  day's  task  is 
made  the  basis  for  judging  the  individual.  Every 
day  is  a  judgment  day.     Managers  of  banks  see 


12  BANKING    FOR    BEGINNERS 

what  takes  place  but  seldom  remark  about  it.  The 
beginner  in  banking  must  not  make  the  mistake 
of  believing  that  his  work  is  unimportant.  It  is 
well  that  a  messenger  be  reminded  of  the  fact  that 
the  banks  in  many  large  cities  use  old  men  for 
messengers,  and  that  in  country  banks  it  is  often 
the  president  or  cashier  who  performs  such  work. 
The  importance  of  the  work  must  not  be  judged  by 
the  amount  of  the  salary.  The  salary  is  small  be- 
cause the  beginner  knows  so  little  about  his  work. 
As  soon  as  he  is  prepared  for  advancement  his 
salary  is  increased.  The  individual  who  deserves 
and  secures  advancement  must  meet  many  require- 
ments, but  the  more  important  are  (1)  honesty, 
(2)  team  play,  and  (3)  development  of  individual 
capacity. 

HONESTY  AS  AN  ASSET.— The  most  impor- 
tant quality  that  lies  at  the  very  foundation  of  all 
business,  and  more  especially  of  the  banking  busi- 
ness, is  honesty.  If  a  man  is  not  honest,  first  of  all 
with  himself  and  next  with  those  with  whom  he 
comes  in  contact,  it  is  quite  impossible  for  him 
effectively  to  gain  the  confidence  that  is  an  abso- 
lute requisite  in  getting  people  to  entrust  the  bank 
with  their  funds,  which,  next  to  life  and  character, 
are  the  most  valuable  possessions  of  the  greater 
part  of  mankind.  Honesty  includes  truthfulness, 
sincerity,  and  an  absence  of  every  pretension  to 
appear  what  one  is  not.  Bankers  unhesitatingly 
agree  that  the  policy  of  honesty  is  for  them  an 


BANKING    FOR    BEGINNERS  13 

absolute  necessity,  whatever  it  may  be  in  any  other 
business;  and  the  more  robust  the  honesty,  the 
stronger  effect  it  is  likely  to  have  in  producing 
confidence,  which  is  the  soul  of  the  banking  busi- 
ness. However  honest  we  may  be,  however,  wc 
must  not  assume  that  everybody  else  is  honest. 
One  who  is  blind  to  the  minutest  signs  of  honesty 
or  dishonesty  can  never  be  a  successful  credit  man. 
No  man  ever  began  a  career  of  theft  by  stealing 
a  large  sum  of  money.  It  is  the  business  of  the 
credit  man  who  is  judging  business  to  give  full 
weight  to  the  small  events  which  are  forming  the 
character  and  future  of  the  individual.  The  young 
man  who  is  seeking  a  successful  career,  either  in 
business  or  in  banking,  should  never  permit  a  single 
exception  to  his  determination  to  maintain  the 
strictest  standards  of  honesty  and  truthfulness. 

TEAM  PLAY. — Team  play  is  very  important 
in  the  banking  business.  Unless  each  member  of 
the  team  does  his  duty  the  whole  team  cannot  win 
the  game.  Failure  on  the  part  of  one  employe  to 
do  his  duty  in  the  bank  may  keep  as  many  as  three 
hundred  men  from  performing  their  duty  at  the 
proper  time.  Every  team  has  a  captain  who  gives 
the  orders  which  the  members  of  the  team  obey. 
Intelligent  obedience  and  willingness  to  take  orders 
are  important  requirements  for  a  good  player  of 
the  game.  Beginners  in  the  banking  business  must 
look  upon  orders  and  instructions  as  commands 
from  the  team  captain.    Unless  the  bank  employe 


14  BANKING    FOR    BEGINNERS 

makes  up  his  mind  to  do  all  in  his  power  to  make 
the  team — his  bank — a  success,  he  is  unfitted  for 
advancement;  and  it  will  not  take  his  superiors 
long  to  find  it  out.  Not  only  is  team  play  necessary, 
but  the  individual  member  of  the  team  must  develop 
his  own  strength  as  much  as  possible.  Too  much 
emphasis  cannot  be  laid  upon  the  importance  of 
clean  living.  A  man  cannot  advance  rapidly  unless 
he  has  good  health,  and  the  way  to  secure  good 
health  is  to  avoid  late  hours  and  to  secure  adequate 
exercise  outside  of  banking  hours.  Physical  health 
is  the  best  foundation  for  mental  development.  In 
addition  to  health,  the  bank  man  must  develop  his 
knowledge  through  education.  He  should  take 
every  opportunity  that  is  offered  to  him  to  study 
his  occupation  or  to  study  the  business  world  in 
which  he  lives.  Knowledge  is  power.  It  should  be 
remembered  that  self-education  may  go  on  both 
in  school  and  outside  of  school.  Much  knowledge 
and  discipline  may  be  acquired  in  spare  moments 
by  reading,  conversation,  or  even  by  thinking,  but 
such  ways  and  means  cannot  be  successfully  sub- 
stituted for  orthodox  methods  of  instruction. 

SYSTEM  IN  EDUCATION.— Self-education 
without  guidance  is  an  interesting  thing  to  read 
about  in  the  biographies  of  Benjamin  Franklin  and 
Abraham  Lincoln,  but  average  persons  are  not 
equal  to  it.  As  Ben  Jonson  put  it,  "Very  few 
men  are  wise  of  their  own  counsel,  or  learned  by 
their  own  teaching,  for  he  that  is  only  taught  by 


BANKING    FOR    BEGINNERS  15 

himself  has  a  fool  for  a  master."  What  most 
students  need  is  a  teacher  to  direct  and  encourage 
them.  Few  get  much  benefit  from  text-books  or 
lectures  without  collateral  examinations.  Read- 
ing at  random  is  a  delusion  and  a  snare.  Lecture 
schemes  that  purport  to  give  instruction  to  students 
without  requiring  work  by  students  themselves 
are  educational  counterfeits.  Text  literature  and 
lectures  are  educational  food.  Examinations  are 
the  process  of  digestion.  The  mind  as  well  as  the 
body  requires  exercise,  and  the  student  who  ducks 
or  dodges  examination  is  like  the  dyspeptic  who 
bolts  his  food  or  the  athlete  who  sidesteps  his  train- 
ing. The  fact  should  be  appreciated  that  examina- 
tion is  something  more  than  measurement  and 
certification.  Students  who  realize  that  they  are 
to  be  examined  pay  closer  attention  to  their  lessons. 
The  process  of  examination  also  corrects  omissions 
and  misconceptions  otherwise  inevitable  in  any 
system  of  study.  Examination  is  a  fundamental 
necessity  in  practical  education  and  not  a  scholastic 
superfluity  as  some  persons  suppose.  "Learning  by 
study  must  be  won;  'twas  ne'er  entailed  from  sire 
to  son." 

DEVELOPMENT  OF  INDIVIDUAL  CA- 
PACITY.— Every  bank  man  should  make  a  thor- 
ough study  of  his  own  department.  He  should 
endeavor  to  find  ways  for  improving  the  work  that 
is  being  done  within  his  own  department.  Those 
who  can  suggest  improvements  will  always  receive 


16  BANKING    FOR    BEGINNERS 

favorable  mention  when  advancements  are  being 
considered.  But  it  must  be  remembered  that  these 
suggestions  are  welcomed  only  when  given  to  the 
proper  person,  at  the  proper  time,  and  in  the  proper 
way.  The  work  of  no  department  will  run  smoothly 
or  efficiently  unless  the  workers  are  punctual  and 
accurate.  Punctuality  is  demanded  because  the 
work  of  many  may  depend  upon  the  work  of  one 
or  two.  Accuracy  is  demanded  in  order  to  avoid 
unnecessary  labor  for  others  who  are  compelled  to 
balance  with  you.  Particularly  in  the  handling  of 
all  documents  and  in  the  writing  of  all  letters  and 
numerals,  accuracy  is  important.  In  the  writing 
of  numerals  good  penmanship  is  a  prerequisite. 
In  developing  one's  individual  character  and  ability, 
the  saving  of  some  part  of  the  wages  on  each  pay 
day  is  important.  Unless  you  can  save  a  little  you 
will  not  be  in  a  position  to  take  advantage  of  op- 
portunities that  are  offered  you  later  in  life  which 
require  capital.  The  man  who  can  not  discipline 
himself  by  compelling  himself  to  save  a  little  is 
hardly  fitted  to  discipline  other  men  in  other  mat- 
ters. Also,  a  habit  of  regular  saving  will  help  a 
bank  man  out  of  difficulties,  such  as  borrowing, 
and  will  also  keep  him  free  from  worry,  which  is 
known  to  be  a  source  of  personal  inefficiency. 
Above  all  else,  it  is  necessary  for  the  ambitious 
bank  man  to  assume  responsibility.  This  means  to 
take  his  task  seriously  and  to  devote  to  it  his  full 
energy  and  attention.    Men  cannot  advance  with- 


BANKING    FOR    BEGINNERS  17 

out  assuming  responsibility.  What  this  means 
may  be  made  clear  in  several  ways.  First,  the  man 
who  assumes  responsibility  prepares  himself  for 
the  job  just  above  his  present  job,  after  he  has 
mastered  his  present  job.  Then,  when  illness  or 
vacancy  occurs,  the  work  of  the  bank  can  go  for- 
ward and  he  can  be  advanced.  Second,  the  man 
who  assumes  responsibility  never  relies  on  some 
superior  officer  to  see  that  a  thing  is  correct.  He 
finds  the  error  himself,  or  assures  himself  that 
everything  is  correct  and  in  order.  When  you  are 
asked  to  check  some  figures,  or  to  prove  some  fig- 
ures, assume  responsibility  and  locate  the  difficulty. 
Proving  is  not  performed  for  the  purpose  of  provid- 
ing clerks  with  work,  but  to  check  up  a  difference 
between  the  bank  departments  or  to  correct  some 
customer's  error.  Third,  learn  the  art  of  concen- 
tration. This  means  to  become  so  interested  in 
the  task  at  hand  and  so  determined  to  see  it  done 
correctly  that  all  else  is  for  the  time  forgotten. 

FUNCTIONS  AND  INSTRUMENTS.  —  The 
principal  functions  of  banking  are  (1)  to  receive 
deposits,  (2)  to  make  loans,  (3)  to  transfer  money 
and  credit,  (4)  to  issue  currency.  The  principal 
instruments  of  banking  are  (1)  money  and  cur- 
rency, (2)  checks,  (3)  bills  of  exchange,  (4)  prom- 
issory notes.  A  "check"  may  be  defined  as  a  written 
order  on  a  bank  or  banker  for  the  payment  of 
money.  A  "bill  of  exchange"  or  "draft"  may  be 
defined  as  an  order  drawn  by  one  party,  called  the 


18  BANKING    FOR    BEGINNERS 

"drawer,"  on  another  party,  called  the  "drawee," 
for  the  payment  of  money  to  a  third  party,  called 
the  "payee,"  the  amount  to  be  charged  to  the 
drawer.  A  bill  of  exchange  may  be  drawn  payable 
at  sight  or  at  some  specified  time  subsequent  to 
sight  or  demand.  Unless  the  drawee  wishes  to  pay 
a  time  draft  or  bill  when  presented,  he  writes  across 
the  face  of  the  paper  the  word  "Accepted,"  with 
his  signature  and  the  date.  This  means  that  the 
drawee  assents  to  the  terms  of  the  bill  or  draft 
and  binds  himself  to  honor  it  at  maturity.  It  then 
becomes  known  as  an  "acceptance."  A  "promis- 
sory" note  is  a  promise  made  in  writing  by  one 
party,  called  the  "maker,"  to  pay  a  sum  of  money  to 
another  party,  called  the  "payee,"  or  to  his  order. 
BANK  ORGANIZATION.  —  Banking  laws  in 
the  United  States,  both  National  and  State,  have 
become  crystallized  into  concrete  form,  and  in  the 
organization  of  any  banking  corporation  certain 
legal  requirements  are  prescribed  by  governmental 
authorities.  Under  the  National  Bank  Act  there  is 
practically  but  one  form  of  charter.  The  laws  of 
the  different  States,  however,  provide  for  State 
banks  of  deposit  and  discount,  loan  and  trust  com- 
panies and  savings  banks.  In  a  restricted  sense, 
building  and  loan  associations  also  do  a  banking 
business,  and  may  be  incorporated  under  State  law. 
Trust  companies  are  organized  primarily  for  the 
purpose  of  holding  and  administering  trusts  of 
various  kinds.     In  this  capacity  trust  companies 


BANKING    FOR    BEGINNERS  19 

may  act  as  administrators  of  estates,  executors  of 
wills,  guardians  of  minors  or  incompetent  persons, 
and,  in  short,  assume  all  such  responsibilities  dele- 
gated to  individual  trustees.  Trust  companies  may 
also  act  as  registrars  and  transfer  agents.  Most 
trust  companies  have  added  to  this  a  general  com- 
mercial banking  business.  Commercial  banks  un- 
der State  authority  differ  but  little  from  National 
banks  in  the  general  methods  and  scope  of  their 
business. 

BANK  ADMINISTRATION.  —  Banks  are 
governed  by  Boards  of  Directors  elected  by  the 
stockholders.  Bank  officers  are  chosen  by  the  Di- 
rectors and  are  charged  with  the  duties  and  respon- 
sibilities of  active  administration.  The  size  of  the 
bank,  its  location  and  the  amount  of  business  done 
determine  the  number  of  officers,  although  in  every 
bank  there  are  at  least  two,  namely,  a  president 
and  a  cashier.  In  larger  banks  there  are  also  a 
vice-president  and,  sometimes,  an  assistant  cashier. 
In  the  great  city  banks  there  are  frequently  two 
or  more  vice-presidents  and  assistant  cashiers.  In 
the  administration  of  the  affairs  of  any  bank  the 
duties  and  responsibilities  of  every  officer  and 
employe  should  be  well  defined.  Responsibility  is 
commensurate  with  authority,  and  officers  and 
employes  should  be  held  to  strict  accountability  for 
the  satisfactory  performance  of  their  own  specific 
duties — no  more,  no  less.  Those  who  do  more  than 
their  duty  are  in  a  class  by  themselves.    Ambition 


20  BANKING    FOR    BEGINNERS 


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BANKING    FOR    BEGINNERS  21 

to  do  better  and  greater  things,  however,  must  not 
lead  to  the  mistake  of  neglecting  routine  work. 
Banking  is  a  business  of  infinite  detail,  and  accuracy 
and  promptness  in  minor  matters  are  essential  to 
any  complete  and  logical  system  of  administration. 
A  successful  banker,  however,  is  composed  of  about 
one-fifth  accountant,  two-fifths  lawyer,  three-fifths 
political  economist,  and  four-fifths  gentleman  and 
scholar — total  ten-fifths — double  size.  Any  smaller 
person  may  be  a  pawnbroker  or  a  promoter,  but 
not  a  banker. 

ROUTINE  WORK.— The  banker  who  begins 
at  the  bottom — and  that  is  where  every  banker 
should  begin,  whether  his  social  position  is  at  the 
beginning  or  the  end  of  an  ancestral  line — should 
systematize  routine  work  into  habit,  thereby  sim- 
plifying physical  movements,  diminishing  fatigue 
and  assuring  speed  and  accuracy.  Uniform  and 
continued  practice  will  create  well  beaten  channels 
of  thought,  so  that  a  minimum  of  mental  sugges- 
tion will  cause  the  automatic  performance  of  a 
mountain  of  detail,  with  the  nervous  system  as  an 
ally  and  not  an  enemy.  The  only  danger  in  thus 
maximizing  the  physical  and  minimizing  the  men- 
tal is  that  intellectuality  may  sometimes  become 
obscure.  The  beginner  in  banking  should  master 
routine,  but  should  not  let  routine  master  him. 
In  accordance  with  such  conception  of  routine 
work,  every  bank  man,  no  matter  what  his  position, 
will  find  it  convenient  occasionally  to  use  the  add- 


22  BANKING    FOR    BEGINNERS 

ing  machine.  The  messengers  in  preparing  their 
own  runs,  and  in  helping  with  the  morning  work 
in  the  mail  or  transit  departments,  find  it  indis- 
pensable to  run  an  adding  machine  with  rapidity 
and  accuracy.  In  order  to  secure  this  rapidity  with 
accuracy,  beginners  should  learn  the  right  method 
of  running  such  machines  from  the  very  start  of 
their  training.  Even  if  the  right  method  is  not 
the  quickest  at  the  start,  remember  that  it  is  ulti- 
mate results  that  are  important  in  this  training. 

HOW  TO  OPERATE  THE  ADDING  MA- 
CHINE.— After  careful  observation  of  the  methods 
used  by  the  majority  of  the  highest  speed  men  in 
the  contests  in  Minneapolis  and  St.  Paul,  the  fol- 
lowing essential  steps  or  rules  were  formulated: 

(1)  Stand  the  checks  on  edge  and  shake  them 
down  so  that  they  may  be  easily  turned  over  by  the 
thumb  of  the  left  hand  catching  the  check  on  the 
edge.  This  is  made  easier  by  leaning  the  bundle 
away  from  the  operator  when  shaking  them  down, 
so  that  the  top  checks  come  forward. 

(2)  Read  the  amount  of  the  check  in  such  a 
way  as  to  enable  you  to  plan  the  striking  of  the 
keys  with  one  movement,  beginning  at  the  bottom 
of  the  keyboard  and  moving  upward.  This  method 
of  reading  checks  will  be  more  quickly  learned  by 
making  it  a  practice  to  strike  the  lowest  numbers 
first,  no  matter  how  they  may  be  arranged  in  the 
amount.  It  should  never  be  necessary  to  come 
down  the  keyboard. 


BANKING    FOR    BEGINNERS  23 

(3)  Do  not  fail  to  use  from  the  start  at  least 
two  fingers  in  striking  the  keys. 

(4)  When  the  upward  movement  is  complete 
it  will  be  found  very  easy  to  pull  the  lever  forward 
and  release  it  (or  to  strike  the  recording  key  in 
electric  machines)  and  at  the  same  moment  turn 
over  your  recorded  check. 

(5)  Turn  the  check  over  completely  by  taking 
hold  at  the  left  end  of  the  check,  and  you  will  find 
it  easy  to  notice,  either  by  the  endorsements  or  the 
color  of  the  check,  that  you  have  turned  over  only 
a  single  check.  Occasionally  a  general  glance  in 
this  manner  at  the  back  of  checks  will  reveal  some 
defects  of  endorsement,  but  the  beginner  will  hardly 
acquire  this  ability  to  "sense"  an  error  until  he  has 
had  considerable  practice.  After  the  student  has 
acquired  considerable  proficiency  he  may  easily 
adopt  the  method  of  using  the  thumb  and  finger 
to  turn  up  the  right  end  of  the  checks  for  reading, 
while  holding  the  recorded  checks  between  the 
fingers,  until  the  bundle  becomes  unmanageable. 
At  this  point  the  whole  bundle  may  be  turned  over 
as  though  it  were  a  single  check.  This  is  the  quick- 
est way,  but  it  does  not  suit  the  beginner,  nor  give 
the  experienced  hand  an  opportunity  to  pick  out 
irregular  items. 

SPECIAL  INSTRUCTIONS  FOR  MESSEN- 
GERS AND  COLLECTORS.  — (1)  The  head 
messenger  will  make  a  daily  schedule  for  reporting 
each  morning  for  work,  lunch  hour,  etc.    When  the 


24  BANKING    FOR    BEGINNERS 

messengers  are  not  out  on  trips  they  will  be  as- 
signed to  other  work.  Messengers  must  report 
immediately  to  the  head  messenger  upon  return 
from  routes.  If  unable  to  report  for  work,  tele- 
phone the  chief  clerk  not  later  than  9  A.  M.  If 
late,  notify  the  head  messenger  upon  arrival,  so 
that  your  name  will  not  be  reported  as  being  absent. 

(2)  Messengers  generally  leave  on  the  first 
route  at  10  A.  M.  each  morning;  the  second  route 
leaves  at  11  A.  M.,  and  the  third  route  leaves 
at  1:15  P.  M.  each  day  excepting  Saturday, 
when  it  leaves  at  11:45  A.  M.  Such  routes  and 
times  may  of  course  vary  in  different  cities.  Those 
who  are  employed  on  the  "Early  Morning  Mail" 
must  be  sure  that  everything  carried  by  them  on 
their  routes  has  been  turned  in  before  leaving  at 
night,  and  must  check  up  with  the  head  messenger. 
Be  sure  that  your  wallet  is  supplied  at  all  times 
with  "Notices,"  "Dishonored  Check  Receipts," 
"Cash  Envelopes"  and  "Collection  Paid  Stamp." 
It  is  very  important  that  you  keep  the  date  correct 
on  your  collection  paid  stamp.  If  the  documents 
which  you  have  stamped  should  be  needed  as  proof 
in  court,  the  exact  date  will  be  very  necessary.  The 
wallet  should  always  be  carried,  even  if  it  is  only 
for  one  item.  Keep  your  hand  on  the  wallet  and 
then  no  one  will  be  able  to  take  it  away  from  you 
without  your  knowing  it. 

(3)  Before  starting  on  your  trip,  be  sure  that 
you  have  located  with  accuracy  all  of  the  parties 


BANKING    FOR    BEGINNERS  25 

for  whom  you  have  documents.  When  you  have 
a  large  number  for  one  building,  ride  up  in  the 
elevator  and  distribute  the  documents  from  office 
to  office  as  you  run  down  from  the  top  floor  to 
the  bottom.  Take  the  elevator  up  again  and  follow 
down  your  documents.  It  will  be  observed  that 
this  gives  each  customer  an  equal  amount  of  time 
for  the  inspection  of  the  documents  and  also  en- 
ables you  to  complete  the  building  with  the  least 
delay. 

(4)  On  entering  an  office  for  the  purpose  of 
making  presentation  of  collections,  etc.,  always 
bear  in  mind  that  you  are  a  representative  of  your 
bank,  and  that  your  institution  is  constantly  en- 
deavoring to  obtain  new  customers,  and  at  the 
same  time  please  all  with  whom  the  bank  does 
business. 

(5)  Present  all  paper  promptly.  Drafts  for 
acceptance  or  payment  should  always  be  presented 
to  the  drawee  in  person,  and  the  collector  should 
make  every  effort  to  find  him.  In  case  the  drawee 
is  absent  a  presentation  of  the  draft  at  his  place 
of  business  and  the  leaving  of  a  notice  is  sufficient, 
but  whenever  possible  see  the  drawee  in  person. 

(6)  Present  all  firm  or  corporation  documents 
at  the  cashier's  office  of  the  concern,  and  be  careful 
to  distinguish  between  documents  which  are  obli- 
gations of  the  firm  and  others  that  are  personal 
obligations  of  its  officers  or  employes.  Such  per- 
sonal documents  should  not  come  to  the  knowledge 


26  BANKING    FOR    BEGINNERS 

of  the  firm  except  when  the  individual  gives  an 
order  accordingly. 

(7)  If  the  draft  or  note,  or  whatever  the  docu- 
ment may  be,  is  refused  payment  or  acceptance,  the 
collector  should  try  to  get  the  interested  party  to 
write  his  reason  on  the  back  of  the  document  itself 
and  never  on  any  papers  which  are  attached  to  it. 
In  the  event  of  his  refusing  to  do  so  the  collector 
should  himself  make  the  notation.  For  instance: 
"Amount  Incorrect,"  "Will  Mail  Check,"  "Drawee 
Will  Take  Up  the  Matter  Direct  With  the  Drawer." 
When  he  says  "Will  Write,"  always  ask  "To 
Whom?"  No  document  should  be  returned  to  the 
collection  teller  without  some  notation  of  reasons. 
In  the  case  of  handling  returned  checks,  notations 
should  be  made  on  the  back  of  the  "Return  Slip" 
which  is  attached  to  the  face  of  the  check.  These 
rules  are  of  importance  and  should  be  followed  for 
perfect  work. 

(8)  In  the  case  of  non-payment  or  non-accept- 
ance, leave  plain  and  legible  "Notices."  Be  sure 
and  leave  notices  in  all  cases,  unless  paper  is  paid. 
Remember  that  the  "Notice"  is  left  to  safeguard 
your  bank  from  a  lawsuit  for  not  having  presented 
the  paper.  The  notice  is  proof  of  presentation.  If 
entrance  to  office  or  residence  of  drawee  is  locked, 
the  notice  may  be  left  in  the  drawee's  mail  box  or 
under  the  door. 

(9)  When  a  time  draft  is  presented  for  accept- 
ance, be  sure  that  the  party  who  accepts  the  same 


BANKING    FOR    BEGINNERS  27 

has  the  proper  authority  to  do  so.  Acceptance 
should  be  signed  as  follows:  When  drawn  on  a 
partnership,  by  one  of  the  partners;  if  a  corpora- 
tion, by  some  official,  who  must  show  his  title  after 
his  name  when  signing  for  the  corporation. 

(10)  Always  remember  to  either  get  payment 
or  bring  back  the  item  itself.  Never  leave  an  un- 
paid draft  or  note  without  first  calling  up  the  city 
collection  department,  draft  teller  or  head  mes- 
senger. Messengers  frequently  have  to  present 
the  same  draft  to  certain  firms  several  times.  They 
should  never  intimate  to  such  firms  that  they  are 
tired  of  bringing  the  same  collection  over  and  over 
again  without  results.  The  teller  should,  however, 
not  allow  collections  to  drag  along  too  long,  and 
after  an  item  has  been  presented  a  certain  number 
of  times  it  is  well  to  attach  a  notation  saying  that 
if  such  item  is  not  paid  "We  Will  Be  Obliged  to 
Return  It  to  the  Source  from  Which  We  Received 
It."  When  you  have  for  collection  two  or  more 
drafts  drawn  on  one  party  who  pays  by  one  check, 
the  amounts  of  the  drafts  that  are  paid  must  be 
listed  on  the  back  of  the  check.  This  facilitates 
tracing  and  checking  up. 

(11)  Drafts  are  frequently  paid  by  persons 
other  than  those  on  whom  the  same  are  drawn,  but 
great  care  should  be  exercised  in  such  cases  in 
order  to  avoid  liability  for  loss  occurring  to  the 
rightful  owner  of  goods  released  as  collateral.  Be 
sure  to  write  on  the  back  of  the  check  the  name 


28  BANKING    FOR    BEGINNERS 

of  the  party  on  whom  the  draft  was  drawn.  When 
you  are  presenting  a  draft  for  payment,  never 
allow  anybody  to  take  up  and  keep  a  bill  of  lading 
or  other  papers  unless  they  pay  the  draft.  When 
documents  are  attached  to  drafts  presented  for 
payment,  observe  closely  the  number  of  bills  of 
lading  and  other  documents,  and  be  sure  that  the 
same  number  and  kinds  are  returned  to  you  if  the 
draft  is  not  paid.  Do  not  permit  a  change  to  be 
made  in  the  wording  or  meaning  of  any  paper. 

(12)  Messengers  should  know  which  items  are 
handled  as  cash  and  which  are  ordinary  collections. 
Cash  items  must  be  paid  on  demand,  and  cannot 
be  held  over.  Customers  frequently  say  "Hold  for 
a  few  days,"  when,  if  they  understood  that  instruc- 
tions were  not  to  hold,  they  would  pay  at  sight, 
thus  saving  the  time  and  trouble  of  telephoning 
and  of  making  a  second  trip.  A  messenger  should 
never  try  to  answer  questions  regarding  matters 
with  which  he  is  not  familiar.  Any  time  such 
questions  may  be  asked,  promptly  call  the  collec- 
tion teller  by  telephone  and  see  that  the  customer 

is  thoroughly  informed  before  taking  the  collection  I 

back  to  the  bank. 

(13)  When  you  receive  currency  in  payment 
of  items,  be  sure  that  you  have  the  correct  amount. 
When  receiving  cash,  place  the  same  in  your  "Cash 
Envelope"  in  the  presence  of  the  party  giving  the 
same  to  you,  so  that  in  case  you  should  receive 
counterfeit  or  mutilated  money  you  can  prove  that 


BANKING    FOR    BEGINNERS  29 

you  received  it  from  them.  Seal  the  envelope  and 
place  the  name  of  the  payer,  the  date  and  your 
name  on  the  outside.  Always  "Line  up"  checks  and 
currency  that  you  have  received,  so  that  they  are 
ready  for  quick  reading  or  counting  by  those  who 
receive  them  from  you  at  the  bank. 

(14)  Make  it  a  rule  to  look  over  what  is  re- 
ceived from  customers  after  presentation  with  the 
greatest  care  in  order  to  avoid  errors  or  trouble 
for  other  men  in  your  bank  who  must  handle  the 
documents  you  have  received.  Be  sure  the  checks 
received  are  signed.  This  is  a  simple  illustration 
of  this  point.  In  fact,  the  messengers  should  be 
so  well  versed  in  the  proper  form  and  filling  in  of 
documents  that  they  will  observe  at  a  glance  when 
some  defect  needs  correcting.  Make  it  a  rule  to 
scan  every  document  you  handle  and  develop  a 
capacity  to  detect  such  errors  as  absence  of  date  or 
absence  of  signature. 

(15)  Never  accept  "Part  Payments."  When 
receiving  a  check  be  careful  to  note  the  following: 
(1)  Check  must  be  drawn  on  a  local  bank.  Never 
accept  a  check  drawn  on  any  bank  outside  of  your 
own  city  until  you  have  called  up  and  secured  such 
permission  from  an  officer.  (2)  Check  must  be 
payable  to  your  own  bank.  (3)  The  amount  should 
be  correct.  (4)  Check  should  be  properly  signed. 
(5)  The  amount  in  figures  must  agree  with  the 
written  amount.  Never  accept  a  draft  which  is 
drawn  on  anyone  else  as  payment  for  an  item. 


30  BANKING    FOR    BEGINNERS 

(16)  If  the  party  who  usually  signs  the  checks 
is  not  in,  see  that  the  draft  is  "OK'ed"  by  some  re- 
sponsible person  who  agrees  to  see  that  the  draft 
is  paid  on  the  following  presentation.  Complaints 
are  continually  being  made  by  large  firms  and  busi- 
ness men  that  documents  are  presented  between 
12  and  1  o'clock,  or  while  the  person  in  charge 
of  the  office  is  at  lunch;  and,  although  the  bank 
collector  cannot  please  everybody  in  this  respect, 
still,  by  changing  his  route  a  little,  he  can  invariably 
arrange  matters  so  as  to  be  at  the  office  when  the 
cashier  is  in  and  not  receive  the  same  answer  each 
day  that  the  Cashier  is  at  lunch.  This  may  ap- 
pear to  be  a  small  matter,  but  in  reality  it  is  of 
very  great  importance,  and  may  be  a  way  for 
making  the  relations  of  these  firms  and  your  bank 
more  agreeable.  If  you  have  any  special  instruc- 
tions, always  explain  what  your  instructions  are, 
and  say  that  you  cannot  do  anything  different  with- 
out permission  from  the  person  who  gave  you  your 
instructions. 

(17)  The  messenger  should  be  especially  care- 
ful in  the  handling  of  papers  and  documents  so 
that  he  will  not  lose  them.  The  loss  of  a  document 
may  lay  the  bank  open  to  a  lawsuit  and  cause  it 
to  suffer  a  considerable  loss.  For  example,  the  loss 
of  a  payment  upon  a  real  estate  option,  or  a  failure 
to  deliver  a  bill  of  lading  for  perishable  goods, 
would  give  a  customer  just  cause  for  complaint. 
The  representative  of  a  bank  should  cultivate  the 


BANKING    FOR    BEGINNERS  31 

habit  of  making  a  mental  note  of  all  documents 
handed  out  and  received  in  order  to  detect  detach- 
ments that  customers  may  have  attempted  to 
make. 

(18)  In  handling  checks  returned  for  endorse- 
ment, always  see  that  each  check  is  endorsed  ex- 
actly in  the  form  in  which  the  name  of  the  payee 
appears  on  the  check.  If  the  payee  is  a  partnership, 
the  endorsement  must  be  made  by  one  of  the  part- 
ners and  show  the  partnership  name.  If  the  payee 
is  a  corporation,  the  endorsement  must  show  the 
name  of  an  official  of  the  corporation,  together 
with  his  title. 

(19)  "Dishonored  Check  Receipts"  may  be  used 
only  in  the  following  cases : 

(a)  Where  the  check  has  not  been  endorsed. 

(b)  Where  the  check  is  not  properly  endorsed. 

(c)  Where  the  check  is  not  countersigned. 

(d)  Where  the  check  is  not  signed. 

(e)  Where  the  amount  is  to  be  guaranteed. 

(f )  When  an  alteration  is  to  be  guaranteed. 
The  messenger  who  is  interested  in  the  growth 

of  his  own  bank  will  notice  all  new  firms  which  are 
just  starting  in  business,  or  old  firms  which  are 
moving  to  a  new  location,  and  will  report  such  facts 
to  the  head  messenger.  Credit  will  be  given  for 
any  new  accounts  that  may  be  brought  to  the  bank 
in  this  way. 

(20)  Messengers  should  understand  that  their 
time  belongs  to  the  bank  from  the  time  when  they 


32  BANKING    FOR    BEGINNERS 

arrive  in  the  morning  until  they  leave  at  night. 
Spare  moments  should  be  used  for  improving 
knowledge  and  training  with  the  equipment  of  the 
bank.  Messengers  should  not  do  personal  errands 
for  anyone  except  during  the  noon  hour  or  outside 
of  banking  hours.  If  it  is  necessary  for  a  messenger 
to  have  a  short  leave  of  absence,  such,  for  instance, 
as  to  go  to  a  dentist,  leave  may  be  secured  by  mak- 
ing request  to  the  department  head  or  to  an  officer. 
(21)  Take  nothing  for  granted.  Investigate 
anything  that  you  do  not  thoroughly  understand. 


CHAPTER  II 


Elements  of  Contracts 

DEFINITION  OF  CONTRACT.— A  contract 
is  an  agreement  containing  a  promise  that  is  en- 
forceable in  law.  "Agreement"  shows  that  there 
must  be  at  least  two  parties,  one  of  whom  has  made 
an  offer  which  the  other  has  accepted.  It  must 
contain  a  promise  to  do  something.  It  must  be  a 
promise  that  can  be  enforced  in  a  court  of  law — 
that  is,  if  one  party  refused  to  do  what  he  had 
promised  the  other  can  go  into  court  and  compel 
him  to  do  so  or  get  damages.  Not  all  agreements 
containing  promises  are  enforceable  in  law — that 
is  why  we  say  that  this  enforceability  is  necessary 
to  make  a  contract.  For  instance,  agreements  made 
jokingly,  and  social  agreements,  cannot  be  en- 
forced in  court.  The  motives  which  caused  the 
parties  to  make  the  agreement  have  nothing  to  do 
with  its  enforceability.  Contracts  may  result  from 
words  or  acts. 

IMPORTANCE  OF  STUDY  OF  CON- 
TRACTS.— Practically  every  commercial  trans- 
action we  can  engage  in  rests  on  an  agreement 
between  parties.  Arrangements  for  credit;  prom- 
ises to  do  future  acts;  endorsements  on  bills  and 
notes ;  agreements  to  pay  another's  debt ;  a  bank's 
promise  to  pay  checks  drawn  on  a  checking  ac- 
count ;  insurance  policies — all  of  these  are  examples 

33 


34 


BANKING    FOR    BEGINNERS 


of  agreements  which  are  contracts.  It  can  be  seen 
that  a  knowledge  of  the  principles  of  the  law  of 
contracts  is  extremely  important  to  the  banker,  for 
he  is  continually  concerned  with  the  business  affairs 
of  other  people,  and  should  also  know  just  what 
duties  and  rights  a  bank  is  giving  and  receiving 
in  any  transaction  that  it  enters. 


CONTRACT  TO  PERFORM  WORK. 


This  Agreement  made  this  fourth  day  of  April, 
1915,  between  John  Rogers  of  Mattoon,  Illinois,  and 
George  Smith  of  the  same  place,  witnesseth:  That 
the  said  John  Rogers  agrees  to  work  for  the  said 
George  Smith  as  a  laborer  in  the  latter's  lumber 
yard  near  the  city  of  Mattoon,  during  a  period  of 
six  months,  beginning  April  15,  1915,  and  ending 
October  14,  1915. 

In  consideration  of  the  services  so  performed,  the 
said  George  Smith  agrees  to  pay  to  the  said  John 
Rogers  the  sum  of  Fifty  Dollars  per  month,  to  be 
paid  at  the  end  of  each  month  of  said  term. 

In  witness  whereof,  we  have  hereunto  set  our 
hands  and  seals  the  day  and  year  first  above  written. 

Witnesses : 

C.  E.  Keagy 

A.  Q.  Fulton  r  — •—  I 

John  Rogers      j    L.  S.   j- 


George  Smith 


]rr} 


BANKING    FOR    BEGINNERS  35 

EXPRESS  VERSUS  IMPLIED  CON- 
TRACTS.—  It  will  be  advisable  to  know  a  few 
common  classifications  of  contracts.  Contracts 
are  either  ''express"  or  "implied."  Where  there 
is  an  actual  promise,  either  in  writing  or  words,  the 
contract  is  express.  When  the  obligation  is  deter- 
mined by  considering  the  conduct  of  the  parties, 
it  is  a  promise  implied  in  fact.  For  instance,  if 
Jones,  with  the  knowledge  of  Smith,  who  says 
nothing,  paints  Smith's  fence,  a  promise  to  pay  the 
reasonable  value  of  the  work  performed  is  implied. 
Likewise,  a  promise  to  pay  is  implied  where  a  per- 
son, though  he  is  not  a  subscriber,  takes  a  news- 
paper from  the  post  office  through  which  it  is  regu- 
larly sent  to  him.  In  these  cases  there  is  a  promise 
implied  in  fact — from  the  conduct  of  the  parties. 
There  is  no  obligation  if  the  services  are  performed 
gratuitously  and  if  the  person  receiving  the  benefit 
has  not  been  in  a  situation  where  he  was  free  to 
choose  whether  he  would  accept  the  work.  He 
must  also  have  done  something  (which  may  be  say- 
ing nothing)  from  which  one  could  fairly  infer  that 
he  had  intended  to  pay.  The  law  will  impose  an 
obligation  where  one  person  has  benefited  at  the 
expense  of  another  and  circumstances  exist  under 
which  it  is  just  that  the  other  man  should  be  repaid. 

FORMAL  VERSUS  INFORMAL  CON- 
TRACTS.—Another  division  is  into  "formal"  and 
"informal"  contracts.  Formal  contracts  are  those 
under  seal  or  record — that  is,  acknowledgments 


36  BANKING    FOR    BEGINNERS 

of  debt  entered  on  the  records  of  a  court,  and  con- 
tracts in  writing  and  under  seal  (all  contracts  under 
seal  are  written). 

SPECIMEN  OF  SEALED  CONTRACT 


$5,000                              Buffalo,  N.  Y.,  1 

May  15, 

1917. 

Sixty  days  after  date  I  promise  to 

pay  to 

John 

Roberts  Five  Thousand  Dollars. 

In  witness  and  confirmation  whereof 

,  I  have  here- 

unto  set  my  hand  and  seal. 

(Signed)  JAMES  ROGERS  (Seal) 

SIMPLE  CONTRACT  OR  PROMISE  TO  PAY 
MONEY 


July  2.  1917. 

Thirty   days   after  date   I   promise  to  pay  John 
Smith  two  hundred  dollars,  for  value  received. 

(Signed)  RALPH  RICHARDS. 


Informal  or  simple  contracts  are  also  known  as 
"parol  contracts"  and  include  all  contracts  not 
under  seal  or  of  record.  They  may  be  in  writing 
or  oral  (it  is  a  common  mistake  when  "parol  con- 
tracts" are  mentioned  to  believe  that  oral  contracts 
only  are  meant).  The  chief  difficulty  of  oral  con- 
tracts arises  when  it  is  endeavored  to  prove  their 


BANKING    FOR    BEGINNERS  37 

FORM  OF  WRITTEN  CONTRACT 


THIS  AGREEMENT,  made  in  triplicate,  this  fifteenth 
day  of  June,  one  tliousand  nine  hundred  sixteen,  by  and 
between  James  Harrod,  of  Louisville,  Kentucky,  of  the 
first  part,  and  Rex  Beisel,  of  Cincinnati,  Ohio,  of  the  sec- 
ond part,  WITNESSETH,  as  follows: 

First,  that  the  said  party  of  the  first  part,  for  and  in 
consideration  of  the  agreements  herein  stated,  to  be  per- 
formed by  the  party  of  the  second  part,  agrees  to  construct 
and  finish  in  good  and  workmanlike  manner  for  the  party 
of  the  second  part,  on  a  lot  belonging  to  him,  known  as 
1109  Perry  Avenue,  in  Cincinnati,  Ohio,  one  wooden 
garage,  in  accordance  with  the  plans  made  by  Tyler 
Woodruff,  architect,  of  Cincinnati,  Ohio,  said  plans  being 
attached  to  this  agreement.  Said  garage  is  to  be  con- 
structed of  materials  to  be  passed  on  by  the  said  Tyler 
Woodruff  before  they  are  used.  Said  garage  is  to  be 
ready  for  occupancy  by  the  first  day  of  August,  one  thou- 
sand nine  hundred  sixteen. 

Second,  that  the  party  of  the  first  part  further  agrees 
that  in  case  he  shall  fail  to  have  the  garage  ready  for 
use  by  the  date  above  specified  he  wUl  pay  to  the  party 
of  the  second  part  ten  dollars  as  liquidated  damages,  for 
such  delay,  for  every  day  that  the  completion  of  this  con- 
tract is  delayed. 

Third,  that  the  party  of  the  second  part,  in  consideration 
thereof,  agrees  to  pay  to  the  said  party  of  the  first  part  for 
the  same  the  sum  of  one  thousand  dollars,  in  lawful  money 
of  the  United  States,  when  the  said  garage  is  ready  for 
occupancy.  The  party  of  the  second  part  further  agrees 
to  pay  all  charges  for  services  made  by  the  aforementioned 
Tyler  Woodruff  in  connection  with  the  said  garage. 

IN  WITNESS  WHEREOF,  The  parties  to  these  pres- 
ents have  hereunto  set  their  hands  the  day  and  year  first 
above  written.  (Signed)  \  JAMES  HARROD, 

Witnessed  by:  I  REX  BEISEL. 

IRA  HALL, 

STEPHEN  CODY. 


••>  O  r"*  * 


38  BANKING    FOR    BEGINNERS 

existence.  We  do  not  have  space  here  to  give  the 
rules  by  which  the  terms  and  existence  of  oral  con- 
tracts must  be  proved.  As  a  result  of  the  difficulty 
of  proving  their  terms  and  existence,  what  is  known 
as  the  Statute  of  Frauds  was  passed  in  England  in 
1676,  and  has  been  adopted  generally  in  the  United 
States.  It  provides  that  certain  contracts  must  be 
in  writing,  or  properly  evidenced  in  some  other 
way,  to  make  them  valid.  In  most  cases,  however, 
an  oral  contract  is  just  as  good  as  one  in  writing. 
Contracts  do  not  have  to  be  sealed  or  witnessed. 
The  wording  of  written  contracts  may  be  very 
simple,  but  should  state  fully  the  intention  of  the 
parties.  Even  where  contracts  are  required  to  be 
in  writing,  this  writing  may  be  a  brief  note  or 
memorandum. 


SIMPLER 

FORM  OF 

WRITTEN  CONTRACT 

A  and  B 
A  to  (state 
promises). 

do  hereby  mutually  agree  as 
what  A  promises) ;  B  to  (state 

follows : 
what  B 

Boston,  Mass.,  Dec.  5, 

1907. 

A. 

B. 

VOID  VERSUS  VOIDABLE  CONTRACTS. 
— There  is  an  important  distinction  between  "void" 
and  'Voidable"  contracts.  Confusion  sometimes 
arises  from  the  failure  to  understand  the  difference. 
A  contract  is  void  when  the  law  declares  it  to  be 


BANKING    FOR    BEGINNERS  39 

so  absolutely — there  is  no  contract  whatever  and 
no  change  in  the  legal  position  of  the  parties;  it 
cannot  be  ratified.  A  voidable  contract,  on  the 
other  hand,  binds  one  party  but  not  the  other;  it 
is  valid  until  it  is  avoided  by  the  party  entitled  to 
avoid  it  (refuse  to  do  his  part).  Until  thus  dis- 
affirmed it  is  binding.  It  may  be  ratified.  Thus, 
A  agrees  to  sell  a  $5,000  automobile  to  B,  a  minor 
(not  yet  21  years  of  age).  A  is  bound  to  furnish 
the  automobile  and  cannot  plead  that  B  v^^as  not 
of  age;  B  may  refuse  to  take  the  automobile,  in 
which  case  A  is  helpless;  B  may  ratify  after  be- 
coming of  age — that  is,  agree  to  fulfill  his  part  of 
the  contract  he  had  entered  into  when  a  minor. 
As  we  shall  see  later,  a  minor  is  bound  to  pay  for 
necessaries,  but  even  then  only  a  reasonable  price. 
For  instance,  B,  a  minor,  agrees  to  purchase  a  $30 
suit  from  A,  who  furnishes  the  suit.  B  then  tries 
to  avoid  paying  for  it,  alleging  that  he  was  not 
able  to  enter  into  a  contract.  He  will  be  compelled 
to  pay  for  it,  but  only  what  the  suit  is  worth — 
regardless  of  the  fact  that  he  had  agreed  to  pay  $30. 
ESSENTIALS  OF  CONTRACTS.— We  shall 
next  consider  the  various  elements  necessary  to 
render  a  contract  enforceable  in  court,  either  by  the 
compelling  of  specific  performance  or  the  payment 
of  damages  for  non-performance.  There  must  be 
a  legal  object  of  the  agreement,  competent  parties, 
offer  and  acceptance  between  the  parties,  reality 
of  consent,  and  consideration. 


40  BANKING    FOR    BEGINNERS 

LEGAL  OBJECT.— When  an  agreement  has 
an  illegal  object  it  is  not  a  contract  and  is  not  en- 
forceable at  law.  A  contract  must  have  a  lawful 
purpose.  Clearly,  if  a  man  should  bind  himself 
to  another  to  kill  a  third  party  he  could  not  be 
compelled  to  perform  his  agreement.  Illegal  agree- 
ments may  be  in  violation  of  statutes  or  against 
public  policy.  An  agreement  directly  opposed  to 
the  constitution  or  the  statutes  of  the  United  States, 
or  of  the  State  to  which  the  parties  are  subject,  or 
infringing  a  Federal  treaty,  will  not  be  enforced 
by  the  courts.  There  are  any  number  of  laws 
which  may  invalidate  agreements  made  in  dis- 
obedience to  them,  but  we  will  have  space  here  to 
mention  only  a  few  of  the  more  important.  Most 
States  by  law  forbid  the  transaction  of  business  on 
Sunday.  But  the  courts  will  usually  enforce  a  busi- 
ness agreement  which  has  been  entered  into  on 
a  Sunday  if  it  has  been  ratified  on  a  week  day. 
The  law  would  not,  however,  affect  contracts  en- 
tered into  on  Sunday  whose  object  was  to  aid  a 
church  or  other  charity.  Contracts  for  garnbling 
or  wagering  are  usually  forbidden.  Wagers  on 
the  rise  or  fall  of  prices  (stock  market  transactions) 
are  illegal  only  where  there  is  no  intent  to  deliver 
or  receive  the  article  itself.  At  one  time  insurance 
was  a  favorite  wagering  contract.  Insurance  con- 
tracts are  now  permitted  by  law,  provided  that  the 
person  taking  out  the  insurance  has  some  insurable 
interest  in  the  life  or  property  which  the  policy 


BANKING    FOR    BEGINNERS  41 

covers.  Contracts  for  usury  are  illegal.  In  most 
States  the  statutes  limit  the  rate  of  interest  which 
may  be  charged  for  the  use  of  money.  Of  course 
the  amount  of  interest  may  be  fixed  below  the  rate 
established  by  law.  The  penalty  for  those  who 
stipulate  for  a  higher  rate  of  interest  than  the  maxi- 
mum varies  greatly,  while  a  few  States  have  no 
penalty  at  all.  Agreements  against  public  policy 
are  those  deemed  injurious  to  the  public  welfare. 
They  may  be  against  the  Government  itself  or  some 
established  interest  of  society.  Public  health  and 
morals  must  be  protected  and  agreements  to  do 
something  which  will  interfere  with  them  are  un- 
enforceable. Agreements  to  influence  legislation; 
interfering  with  the  marriage  relation ;  suppressing 
bidding,  either  on  contracts  or  at  a  public  sale; 
obstructing  justice;  aiding  a  public  enemy;  in- 
ducing the  commission  of  crime — are  contrary  to 
public  policy  and  void.  In  many  cases,  indeed,  the 
agreement  is  not  only  void  but  there  is  a  penalty 
for  entering  into  it. 

EFFECT  OF  ILLEGALITY.  —  Where  one 
provision  in  a  contract  is  void  for  illegality  (and  is 
not  the  contract's  main  or  essential  feature)  but  can 
be  clearly  separated  from  the  other  parts  relied  on, 
such  other  parts  are  not  affected  by  the  invalid 
part,  and  they  may  be  enforced  just  as  if  the  invalid 
provision  had  never  been  in  the  contract.  For  in- 
stance, Allen  sells  his  business  to  Harrowby  for 
$50,000,  and  in  consideration  of  $10,000  more  agrees 


42  BANKING    FOR    BEGINNERS 

not  to  engage  in  a  similar  business  again  anywhere 
in  the  State.  The  second  agreement  is  illegal,  be- 
cause an  unnecessary  restraint  of  trade,  but  as  it 
rests  on  a  separate  consideration  and  can  be  sep- 
arated from  the  legal  part,  the  latter  may  be  en- 
forced (the  agreement  to  sell  the  business).  But 
if  for  $50,000  Allen  had  agreed  to  sell  his  business 
and  not  to  engage  in  business  in  the  State,  then  the 
whole  agreement  falls,  for  it  would  be  impossible 
to  say  how  much  of  the  $50,000  was  for  the  sale 
of  the  business  and  how  much  for  the  agreement 
not  to  engage  in  the  business  again.  The  rule  is 
that  if  any  part  of  an  indivisible  contract  (where 
we  cannot  find  a  separate  consideration  for  the 
illegal  part)  is  void  for  illegality  or  reasons  of  pub- 
lic policy,  then  neither  of  the  parties  can  enforce 
any  of  its  provisions  against  the  other.  If  the 
parties  are  not  in  pari  delicto  (equal  guilt)  the 
courts  may  aid  the  party  who,  compared  with  the 
other,  is  innocent  of  an  illegal  intent,  to  recover 
any  money  he  may  have  paid.  When  equity  and 
justice  require  it,  the  court  will  afford  relief  to  the 
more  innocent  party  even  after  the  contract  has 
been  performed.  For  instance,  a  marriage  broker 
induces  an  ignorant  foreigner  to  pay  him  money 
to  secure  a  wife  for  the  latter.  The  court  will  per- 
mit the  foreigner  to  recover  the  money,  holding 
that  the  parties  are  not  in  equal  guilt,  since  the 
foreigner  is  ignorant  and  has  been  induced  by  the 
broker*s  superior  ability  to  part  with  his  money. 


BANKING    FOR    BEGINNERS  43 

COMPETENT  PARTIES.  — Not  only  must 
there  be  a  legal  object  to  a  contract,  but  there  must 
be  competent  parties.  Competent  persons  are 
those  who  have  the  power  and  capacity  to  enter 
into  the  formation  of  valid  contracts.  Corpora- 
tions may  make  contracts  in  furtherance  of  the 
purposes  for  which  they  are  organized.  This 
power  does  not  need  to  be  expressly  granted.  Con- 
tracts not  within  the  scope  of  the  purposes  for 
which  the  corporation  is  organized  are  said  to  be 
"ultra  vires."  There  is  considerable  difference  of 
opinion  over  the  question  of  how  far  such  con- 
tracts will  be  enforced,  when  they  have  been  partly 
performed.  Aliens  may  generally  contract  the 
same  as  citizens ;  contracts  with  alien  enemies  are, 
as  a  rule,  absolutely  void.  As  regards  other  per- 
sons there  are  generally  two  restrictions,  (1)  per- 
sons lacking  mental  capacity;  (2)  persons  lacking 
legal  capacity,  though  they  may  have  mental 
capacity.  Persons  lacking  mental  capacity  are 
lunatics,  idiots  and  drunkards.  Contracts  with 
such  persons,  except  for  necessaries  furnished 
in  good  faith  and  under  justifiable  circumstances, 
are  either  voidable  or  void.  To  be  able  to  escape 
a  contract  made  while  under  the  influence  of  liquor 
a  person  must  have  been  so  much  intoxicated  as 
to  have  been  unable  to  understand  and  appreciate 
the  nature  of  his  acts.  Insane  persons  and  idiots, 
if  they  recover  their  reason,  may  ratify  contracts 
made  while  in  their  former  condition.     Persons 


44  BANKING    FOR    BEGINNERS 

lacking  legal  capacity  to  contract  are  infants  and, 
in  some  jurisdictions,  married  women.  Infants 
are  persons  under  twenty-one  years  of  age.  In 
many  States  women  become  of  age  when  eighteen, 
and  in  some  prior  to  that  time  if  married.  Con- 
tracts made  during  infancy  are  voidable  and  not 
void — that  is,  they  may  be  evaded  by  the  infant 
but  not  by  the  other  person,  who  is  not  allowed  to 
plead  the  infancy  of  the  former  as  a  reason  for 
not  fulfilling  his  part  of  the  agreement.  They  may 
be  avoided  by  the  infant  even  after  he  becomes  of 
age.  Infants,  however,  are  liable  for  necessaries 
furnished  them — but  only  for  their  fair  value. 
Necessaries  include  not  only  the  bare  necessities 
of  life  but  those  things  necessary  to  the  infant  to 
maintain  his  station  in  life.  To  recover  against 
an  infant  the  plaintiff  must  show  (1)  that  the 
articles  were  in  fact  necessaries;  (2)  that  the  infant 
was  not  already  supplied  with  them;  (3)  their 
reasonable  market  value.  When  an  infant  re- 
pudiates a  contract  he  must  repudiate  the  whole 
contract ;  he  cannot  accept  one  part  and  escape  the 
rest.  Infants  are  liable  upon  contracts  that  they 
ratify.  Ratification  occurs  when,  after  becoming 
of  age,  the  infant  either  promises  to  perform  what 
he  has  agreed  to  do,  or  does  some  act  from  which 
such  promise  can  be  implied.  Under  the  old  com- 
mon law  married  women  could  not  contract  at  all; 
all  contracts  made  by  them  were  absolutely  void. 
Modern  legislation,  however,  has  greatly  enlarged 


BANKING    FOR    BEGINNERS  45 

everywhere  their  power  and  capacity  to  contract. 
In  general  a  married  woman  may  now  contract  as 
fully  as  a  single  woman,  and  may  sue  and  be  sued 
apart  from  her  husband. 

OFFER  AND  ACCEPTANCE.— "Offer"  and 
"acceptance"  are  necessary  to  create  a  binding  ob- 
ligation between  parties.  An  "offer"  is  a  propo- 
sition to  enter  into  a  contract;  an  "acceptance" 
is  a  proper  manifestation  by  the  party  to  whom 
the  offer  is  made  of  his  assent  to  it.  Both  the  offer 
and  its  acceptance  are  necessary.  In  many  cases 
it  is  necessary  to  analyze  carefully  the  negotiations 
between  the  parties  to  discover  whether  there  have 
been  an  offer  and  an  acceptance,  especially  when 
the  negotiations  have  continued  over  some  time 
and  there  has  been  a  variety  of  terms  proposed. 
The  reason  is  that  it  would  be  unfair  to  bind  one 
party  to  a  transaction  unless  the  other  party  had* 
had  the  same  thing  in  mind.  It  is  necessary  that 
the  minds  of  the  parties  shall  meet  and  that  they 
shall  agree  upon  all  material  parts  of  the  alleged 
agreement.  Yet  if  the  party  who  made  the  offer 
(the  "offeror")  had  made  his  offer  in  definite  terms 
and  had  taken  reasonable  steps  to  inform  the  other 
party  (the  "offeree")  of  them,  then  the  law  pre- 
sumes that  the  second  party  in  accepting  the  offer 
accepted  on  those  terms,  and  a  "Meeting  of  the 
minds"  is  presumed  to  have  occurred.  There  must 
be  serious  intention  to  enter  into  an  agreement. 
A  jesting  agreement  is  not  binding,  even  though 


46  BANKING    FOR    BEGINNERS 

the  parties  go  through  the  form  of  making  a  con- 
tract, if  they  had  not  intended  it  to  stand.  It  is 
dangerous,  however,  to  make  offers  or  acceptances 
in  jest,  for  if  the  joke  was  so  well  carried  out  that 
it  was  likely  to  deceive,  one  of  the  parties  may 
enforce  it  in  court  if  he  alleges  that  he  took  it 
seriously. 

OFFER. — ^The  offer  must  have  been  communi- 
cated to  the  offeree,  the  manner  of  communication 
being  immaterial,  because  it  is  impossible  for  a 
person  to  assent  to  something  of  which  he  did  not 
know.  In  a  New  York  case  A  offered  a  reward  of 
$200  to  any  person  giving  information  leading  to 
the  arrest  and  conviction  of  a  certain  murderer. 
B  gave  the  information  before  he  knew  the  reward 
had  been  offered ;  it  was  held  that  he  could  not  get 
the  reward  since  he  had  not  acted  in  reliance  upon 
the  offer.  Acceptance  of  the  offer  must  be  estab- 
lished by  proving  that  the  act  was  done  in  reliance 
upon  the  offer.  It  must  be  clearly  shown  also  that 
the  alleged  offeror  actually  intended  to  make  an 
offer.  Mere  statements  of  price  are  not  offers  which 
will  bind  one  if  accepted  by  the  other  party.  In 
a  leading  case  Kershaw  &  Son  wrote  to  Moulton: 
"In  consequence  of  a  rupture  in  the  salt  trade,  we 
are  authorized  to  offer  Michigan  fine  salt  at  85 
cents  per  barrel.  Shall  be  pleased  to  receive  your 
order."  Moulton  telegraphed  that  he  would  take 
2,000  barrels,  which  Kershaw  refused  to  deliver. 
The  court  held  that  there  was  no  offer  which  bound 


BANKING    FOR    BEGINNERS  47 

Kershaw  when  Moulton  telegraphed  his  order. 
Kershaw's  letter  was  held  to  be  merely  an  adver- 
tisement or  business  circular,  to  call  attention  to 
the  fact  that  good  bargains  in  salt  could  be  had  by 
applying  to  him.  As  it  was  not  an  offer  Moulton's 
rejected  order  could  not  unite  with  it  to  form  a 
contract.  In  another  case  A  telegraphed  B :  "Will 
you  sell  Bumper  Hall  pen?  Telegraph  lowest  cash 
price."  B  replied :  "Lowest  price  for  Bumper  Hall 
pen  $4,500."  A  telegraphed  at  once  accepting  the 
alleged  offer.  But  the  court  held  that  no  contract 
had  been  made,  since  B's  telegram  was  not  an  offer. 
Statements  made  in  the  form  of  an  offer  may  be 
made  under  such  circumstances  that  no  offer  will 
be  held  to  have  been  made.  In  a  Tennessee  case 
A,  who  had  just  been  wounded  and  his  son  killed 
in  a  shooting  affray,  exclaimed  that  he  would  give 
$200  for  the  arrest  of  their  assailants.  B  later 
helped  arrest  the  assailant  and  sued  for  the  recov- 
ery of  the  reward.  But  since  A  was  greatly  ex- 
cited the  court  said  that  his  statement  should  be 
regarded  as  a  mere  exclamation  and  not  as  an  offer. 
We  have  just  seen  that  not  all  proposals  in  the 
form  of  offers  are  to  be  so  regarded. 

Ordinary  advertisements  are  not  construed  as 
offers,  but  merely  as  invitations  to  deal  with  the 
advertiser.  Circular  letters  sent  to  the  trade  by 
a  wholesale  merchant  fall  within  the  same  rule. 
But  it  is  not  impossible  to  word  an  advertisement 
in  such  a  way  that  it  will  be  an  offer,  for  it  may  be 


48  BANKING    FOR   BEGINNERS 

clear  in  the  advertisement  that  its  author  intends 
it  to  be  an  offer.  In  a  famous  English  case  the 
Carbolic  Smoke  Ball  Company  advertised  that 
they  would  pay  $500  reward  to  anyone  who  used 
their  smoke  ball  three  times  daily  for  two  weeks, 
and  contracted  influenza.  A  purchased  one  of  the 
balls;  used  it  as  directed;  contracted  influenza; 
and  then  sued  for  the  reward.  It  was  held  that 
there  was  a  valid  contract  and  that  he  could  get 
the  $500.  The  court  said  the  company  had  plainly 
meant  the  advertisement  to  be  an  offer,  because 
they  stated  that  they  had  deposited  $500  in  a  cer- 
tain bank  as  evidence  of  their  good  faith,  and  this 
statement  would  justify  A's  belief  that  this  was  a 
real  offer  and  not  an  ordinary  advertisement. 

An  offer  may  be  changed  or  revoked  (withdrawn) 
before  it  is  accepted.  The  person  to  whom  the 
original  offer  was  made  must  be  informed  of  the 
revocation.  Thus,  if  A  says  to  B :  "I  will  give  you 
$50  for  your  watch,"  he  may  withdraw  this  offer 
any  time  before  B,  by  words  or  conduct,  signifies 
that  he  will  accept.  Suppose  A  wrote  to  B,  before 
the  latter  had  accepted,  saying  that  he  withdrew 
his  offer;  B  would  still  have  the  right  to  accept 
until  he  received  A's  letter.  A  change  in  the 
terms  or  conditions  of  an  offer  is  the  same  as  a 
new  offer,  but  must  be  brought  also  to  the  atten- 
tion of  the  offeree,  or  he  may  accept  the  old  offer. 
There  are,  however,  some  qualifications  to  the 
rule   that   an   offer  may  be   changed   or   revoked 


BANKING    FOR    BEGINNERS  49 

before  it  is  accepted.  If  B  gives  A  $10  to  keep  a 
certain  offer  open  for  two  weeks,  then  A  cannot 
withdraw  his  offer  before  that  time.  Such  arrange- 
ments are  known  as  "options."  If  A  had  said  he 
would  keep  the  offer  open  two  weeks  but  had  re- 
ceived nothing  from  B  for  saying  he  would,  then 
he  can  withdraw  his  offer  any  time  before  it  is 
accepted.  Where  an  offer  is  made  to  the  public  gen- 
erally, as  where  a  reward  is  offered  for  the  arrest 
of  a  criminal,  then  it  will  be  enough  to  make  the 
withdrawal  in  the  same  way  the  offer  was  made 

AN  OPTION  AGREEMENT 


Cleveland,  Ohio,  June  6,  1911. 

This  agreement  witnesseth  that  George  H.  Jones 
promises  to  pay  Ralph  Clark  One  Hundred  Dollars 
($100)  five  weeks  from  today.  In  consideration 
whereof,  Clark  hereby  gives  Jones  an  option,  good 
during  the  remainder  of  the  month  of  June,  1911,  to 
purchase  Clark's  farm  "Blackacre"  for  Four  Thou- 
sand Dollars  ($4,000).  Unless  Jones  gives  Clark 
written  notice  by  June  30,  1911,  that  he  will  buy  the 
said  farm  at  the  said  price,  this  option  shall  be  void. 
In  any  event,  Jones  shall  be  required  to  pay  Clark 
the  before  mentioned  sum  of  One  Hundred  Dollars 
($100)  five  weeks  from  date.  If  he  shall  exercise 
this  option,  the  said  sum  shall  be  applied  toward  the 
purchase  price  of  the  farm  "Blackacre." 

(Signed)  GEORGE  H.  JONES. 
RALPH  CLARK. 


50  BANKING    FOR    BEGINNERS 

(through  the  newspapers  or  by  circular,  etc.).  The 
one  who  makes  the  offer  does  not  need  to  notify 
the  offeree  himself  that  he  has  decided  to  withdraw 
his  offer ;  the  latter  may  learn  it  from  a  third  party 
and  lose  his  right  to  accept. 

An  offer  will  not  continue  indefinitely  where 
there  is  no  statement  that  it  is  limited  to  a  certain 
time.  In  such  cases  the  offer  is  said  to  expire  when 
a  reasonable  time  has  passed;  in  each  case  the 
question  of  what  is  a  reasonable  time  is  one  which 
depends  on  the  facts.  Where  the  person  making 
the  offer  dies  before  it  is  accepted,  the  offer  is  held 
to  have  been  revoked.  No  notice  is  necessary  to 
the  offeree  of  his  death.  The  same  rule  holds 
where  the  person  making  the  offer  becomes  insane 
before  it  is  accepted. 

ACCEPTANCE.  —  The  acceptance  of  an  offer 
must  be  unqualified — in  accord  with  the  exact  terms 
of  the  offer.  If  A  says  to  B :  *T  will  sell  my  farm 
for  $10,000,"  and  B  says:  "I  will  consider  your 
offer,  but  I  offer  you  now  $8,000  for  the  farm,"  it 
is  held  that  this  is  a  rejection  of  A's  first  offer  and 
a  new  offer  by  B  to  A.  B  could  not  afterwards 
say  to  A:  'T  accept  your  offer  to  sell  me  your 
farm  for  $10,000"  and  force  A  to  sell  it  to  him.  The 
acceptance  must  be  communicated  to  the  person 
who  has  made  the  offer,  and  in  the  manner  which 
he  had  intended.  Where  an  offer  is  made  by  mail 
it  is  natural  to  suppose  that  the  acceptance  is  to 
be  made  by  mail  and,  unless  some  other  method 


BANKING    FOR    BEGINNERS  51 

is  expressly  specified,  the  acceptance  becomes  bind- 
ing as  soon  as  it  is  mailed.  A  person  cannot  force 
another  person  to  accept  or  refuse  an  offer;  for 
instance,  A  cannot  say  to  B:  "I  have  shipped  you 
certain  goods  at  certain  prices,  and  if  I  do  not  hear 
from  you  will  consider  you  have  accepted  them." 
B  is  not  bound  to  notify  A  he  will  not  take  the 
goods;  this  is  a  convenience,  for  it  would  be  a 
hardship  to  allow  manufacturers  or  others  to  ship 
goods  to  anybody  without  request  and  then  say 
that  unless  the  other  party  notified  them  he  would 
have  to  pay  for  the  goods.  Where  an  offer  is  made 
to  a  specific  person,  only  that  person  can  accept. 
If  the  offer  is  to  the  public  in  general,  then  any 
member  of  it  who  does  what  is  asked  for  becomes 
a  party  to  the  contract.  Sometimes  an  offer  says: 
"Reply  by  return  mail."  This  does  not  mean  the 
first  mail  that  goes  out  after  the  offer  is  received, 
but  a  letter  posted  on  the  day  the  offer  is  received. 

REALITY  OF  CONSENT.— There  must  be 
a  real  understanding  between  the  parties  as  to 
the  contract  they  have  entered  into.  Both  must 
have  had  the  same  thing  in  mind.  Although  there 
have  been  offer  and  acceptance,  the  consent  shown 
by  them  may  not  be  real.  There  are  five  things 
which  may  deprive  an  agreement  of  reality  of  con- 
sent —  mistake,  misrepresentation,  fraud,  undue 
influence,  force.  They  will  not  render  the  contract 
void,  but  only  voidable. 

(a)     Mistakes  are  not  usually  important  enough 


52  BANKING    FOR    BEGINNERS 

to  overthrow  a  whole  agreement.  But  where  both 
parties  think  the  subject  matter  of  the  contract 
exists  but  are  wrong,  then  no  contract  can  arise; 
and  when  they  are  mistaken  as  to  the  identity  of 
the  subject  matter  then  the  same  thing  is  true. 
However,  when  both  parties  are  mistaken  as  to 
the  quality  of  an  article  the  contract  is  usually  not 
affected.  If  only  one  party  is  mistaken  as  to  the 
quality  of  an  article  the  contract  is  usually  not 
affected.  If  only  one  party  is  mistaken  the  con- 
tract is  still  good  if  he  was  not  deceived  by  the 
other  party.  This  is  not  true  where  the  nature  of 
the  contract  is  concerned.  If  A  persuades  B  to 
sign  a  check  by  pretending  that  he  is  signing  some- 
thing else,  B  is  not  bound  to  pay  A.  And  if  B 
thought  he  was  dealing  with  C,  with  whom  he 
has  been  accustomed  to  deal,  but  whose  business 
had  been  bought  by  A,  then  he  is  not  bound  on  a 
contract  with  A,  since  everybody  has  a  right  to 
choose  the  people  with  whom  he  deals.  When  one 
party  to  a  contract  innocently  misleads  the  other, 
the  second  party  can  refuse  to  do  his  part  if  he 
can  show  that  he  was  justified  in  relying  on  the 
other's  statement  and  that  the  statement  was 
relied  on  by  him  and  had  resulted  in  injury  or 
loss  to  him. 

(b)  Fraud  is  different  from  misrepresentation 
in  the  fact  that  one  person  has  deliberately  tried 
to  deceive  the  other.  A  party  can  refuse  to  per- 
form his  part  of  a  contract  on  the  ground  that  the 


BANKING    FOR    BEGINNERS  53 

other  party  practiced  fraud  upon  him  if  he  can 
show  (1)  that  he  believed  the  other's  statements; 
(2)  that  as  a  result  of  those  statements  he  gave 
his  consent  to  the  agreement;  (3)  that  he  has  suf- 
fered as  a  result  of  the  fraud. 

(c)  Undue  influence  is  a  wrong  use  of  power 
over  somebody  else's  will  which  causes  that  per- 
son to  make  contracts  or  gifts  that  otherv/ise  he 
would  not  have  made.  Superior  intellect  is  fre- 
quently used  for  this  purpose. 

(d)  Force  consists  in  actual  or  threatened  force 
to  another  if  he  does  not  do  some  particular  thing. 
The  person  making  an  agreement,  when  forced 
to  do  so  by  the  threats  of  another  that  he  will  injure 
his  body  or  his  property,  may  afterward  repudiate 
the  contract. 

CONSIDERATION.— When  we  say  there  must 
be  "Consideration"  in  a  contract  we  simply  mean 
that  neither  party  has  a  right  to  get  anything  from 
the  other  unless  he  has  given  or  promised  some- 
thing in  return.  If  A  promises  to  give  his  watch 
to  B,  B  cannot  make  A  give  it  to  him  unless  he 
has  given  something  for  this  promise.  In  negoti- 
able instruments,  such  as  checks  and  drafts,  it  is 
presumed  until  it  is  shown  to  be  untrue  that  a 
consideration  exists.  It  is  not  necessary  that  the 
consideration  equal  the  promise  in  value.  For  in- 
stance, if  A  had  promised  to  give  his  $50  watch 
to  B  and  B  had  given  A  a  $5  pipe,  there  would  be 
consideration  and  B  could  make  A  give  him  the 


54  BANKING    FOR    BEGINNERS 

watch.  Neither  is  it  necessary  that  the  promissor 
(the  one  who  makes  the  promise)  receive  any  bene- 
fit from  the  consideration  given  by  the  promisee. 
For  instance,  A  promises  to  give  B  his  $50  watch 
if  B  will  paint  C's  barn.  B  does  so,  after  obtaining 
the  consent  of  C;  he  can  force  A  to  give  him  the 
watch,  even  though  A  may  not  have  received  any 
benefit  from  what  B  has  done. 

A  promise  to  do  something  is  a  sufficient  con- 
sideration for  another  promise.  A  promises  to  sell 
B  a  coat  from  his  store  and  to  deliver  the  coat  at 
a  certain  time;  B  promises  to  receive  and  pay  for 
the  coat.  Each  one's  promise  is  a  consideration 
for  the  other's  promise.  This  would  not  be  true 
if  A  was  legally  bound  to  deliver  the  coat  to  B 
anyway,  because  B  would  have  a  right  to  the  coat 
whether  he  promised  A  anything  or  not.  If  A 
had,  without  B's  knowledge,  sent  the  coat  to  B's 
home  and  B  then  promised  to  pay  for  it,  A  could 
not  compel  him  to  do  so,  since  B's  promise  is  said 
to  rest  on  a  past  consideration.  Where  the  con- 
sideration itself  is  illegal,  no  legal  contract  results. 
Thus,  A  promises  to  pay  B  $100  if  B  will  steal 
some  papers  from  C.  B  get  the  papers,  but  he  can- 
not recover  the  $100,  because  what  he  has  done 
is  illegal.  Promises  to  pay  money  lost  in  gam- 
bling cannot  be  enforced,  since  all  gambling 
contracts  are  illegal.  Under  the  common  law  the 
presence  of  consideration  is  not  required  when  the 
contract  is  in  writing  and  under  seal,  because  it 


BANKING    FOR    BEGINNERS  55 

is  said  that  the  seal  itself  shows  that  there  was 
a  consideration.  This  has  been  changed  in  some 
States,  so  that  a  consideration  must  be  proved  to 
exist  even  if  there  is  a  seal. 

CONTRACTS  THAT  MUST  BE  IN  WRIT- 
ING.— Some  contracts  are  required  by  law  to  be 
in  writing.  The  Statute  of  Frauds,  enacted  in 
1676,  was  the  first  great  law  to  say  what  contracts 
should  be  in  writing.  It  has  been  passed  by  the 
legislatures  in  almost  all  the  States.  The  fourth 
section  of  the  statute  says  that  the  following  kinds 
of  contracts  must  be  in  writing: 

(a)  Promises  by  executors  or  administrators 
to  pay  personally  something  due  from  the  estates 
they  are  administering. 

(b)  Promises  that  another  person  will  pay  his 
debts  (guaranty  and  suretyship). 

SPECIMEN  FORM   OF  GUARANTY— RE- 
QUIRED TO  BE  IN  WRITING 


I  hereby  guarantee  to  any  person  advancing 
money  to  Aleck  Stewart  not  exceeding  One  Thou- 
sand ($1,000)  Dollars,  the  payment  therefor  at  the 
expiration  of  the  credit  which  shall  be  given. 

PERRY  MONTAGUE, 

1521  Xerxes  Avenue, 

Toledo,  Ohio. 
February  14,  1913. 


56  BANKING    FOR    BEGINNERS 

(c)  Promises  to  do  anything,  such  as  changing 
the  ownership  of  property,  in  consideration  of 
marriage;  that  is,  where  the  marriage  itself  is  the 
consideration  for  the  promise  as  to  the  property. 

(d)  Contracts  for  the  sale  of  lands  or  any  in- 
terest in  them  must  be  in  writing.  Oral  contracts 
for  the  sale  of  real  estate  are  generally  not  worth 
anything.  The  phrase  "interest  in  lands"  includes 
such  things  as  contracts  for  the  sale  of  uncut  tim- 
ber, grass,  minerals  in  the  soil  and  growing  crops 
of  various  kinds — before  taken  from  the  soil.  Con- 
tracts concerning  them  must  be  in  writing. 

(e)  Contracts  not  to  be  performed  within  one 
year  from  the  time  the  contract  is  made  must  be 
in  writing.  But  if  it  may  be  fully  performed  within 
one  year  it  does  not  have  to  be  in  writing. 

The  seventeenth  section  of  the  statute  provides 
that  a  contract  for  the  sale  of  goods,  wares  and 
merchandise  (that  is,  any  personal  property)  worth 
$50  or  more  must  be  in  writing  unless  the  buyer 
(1)  accepts  part  of  the  goods  sold  and  has  actually 
received  them  or  (2)  gives  something  in  part  pay- 
ment. This  amount,  however,  varies  in  the  differ- 
ent States  and  in  some  States  it  is  not  included  in 
the  Statute  of  Frauds.  The  writing  which  is  re- 
quired if  neither  of  these  other  things  occurs  may 
be  a  mere  note  and  very  informal.  If  the  contract 
is  not  for  goods,  wares  and  merchandise,  but  for 
work,  services  and  materials,  the  above  provisions 
do  not  apply. 


BANKING    FOR    BEGINNERS  57 

INTERPRETATION  OF  CONTRACTS.— A 
contract  is  an  agreement.  Judges  try  to  discover 
what  was  the  real  meaning  of  the  parties  to  any  con- 
tract. Every  word  or  phrase  used  in  a  contract 
is  important,  since  it  is  difficult  to  prove  by  other 
evidence  that  the  words  used  should  not  be  strictly 
construed.  Judges  will  give  to  all  words  their 
ordinary  meaning  unless  it  appears  that  they  were 
used  in  some  technical  sense.  Business  customs 
are  often  considered  in  trying  to  prove  what  the 
parties  to  a  contract  really  meant.  When  printed 
clauses  or  words  do  not  agree  with  written  ones 
the  written  ones  will  always  be  taken  to  be  the 
real  meaning  of  the  parties. 

RELATION  OF  THIRD  PARTIES.— No  one 
can  be  made  liable  on  a  contract  who  is  not  a 
party  to  it.  A  and  B  have  no  power  to  make  a 
private  agreement  which  can  compel  C  to  do  some- 
thing. Suppose  A  and  B  had  agreed  that  B  was 
to  do  something  for  C.  Can  C  sue  B  if  B  does 
not  do  what  he  has  agreed  to?  Here  the  contract 
has  been  specifically  made  for  C's  benefit.  In  this 
country  the  general  rule  is  that  a  third  person  may 
enforce  a  promise  made  for  his  benefit  even  if  he 
has  furnished  no  consideration  for  the  promise. 
If,  after  A  and  B  have  made  a  contract,  can  they 
both  agree  with  X  that  he  shall  take  B's  place? 
This  is  permitted,  and  is  really  a  new  contract. 
But  can  A,  without  obtaining  B's  permission,  give 
his  ( A's)  rights  to  X  and  compel  B  to  deal  with  X  ? 


58  BANKING    FOR    BEGINNERS 

In  most  kinds  of  transactions  this  is  permitted. 
But  A  would  still  be  liable  to  B  if  X  did  not  do 
what  A  had  agreed  to  do. 

ASSIGNMENT  OF  CONTRACT 


For  value  received  I  hereby  assign  to  X  the  with- 
in contract. 
St.  Paul,  Minn.,  June  29,  1917.  A. 


DISCHARGE  OF  CONTRACTS.— Contracts 
may  be  discharged  (obligations  destroyed)  by  acts 
of  the  parties.  Both  parties  may  agree  to  abandon 
a  contract  they  have  made.  Or  if  one  party  fails 
to  do  his  part  the  other  is  not  compelled  to  do 
his,  and  may  sue  the  first  party  for  his  failure. 
Where  one  party  promises  never  to  sue  the  other 

DISCHARGE  BY  RELEASE 


Know  All  Men  by  These  Presents,  That  I,  A,  of 
Chicago,  Illinois,  for  a  good  and  valuable  consid- 
eration, hereby  release  and  discharge  B,  of  Minne- 
apolis, Minnesota,  from  every  claim  or  demand  of 
any  kind  or  nature. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand 
and  seal  this  twenty-second  day  of  May,  1917. 

(Signature)  [Seal] 


BANKING    FOR    BEGINNERS  59 

if  he  does  not  do  his  part,  this  is  the  same  as  re- 
leasing the  other  party.  Both  parties  may  agree 
to  substitute  a  new  agreement  for  the  old  one.  The 
contract  may  itself  say  that  either  party  may 
abandon  it  within  a  certain  time.  When  either 
party  does  what  he  has  promised  to  do  he  is  dis- 
charged. 

A  contract  may  also  be  discharged  because  when 
it  was  made  it  was  impossible  for  one  or  both  of 
the  parties  to  do  what  they  promised.  When  it 
becomes  impossible  after  the  contract  is  made  to 
do  what  was  agreed  on,  the  contract  will  not  be 
discharged  except: 

(a)  Where  a  change  in  the  laws  or  some  act 
of  law  makes  it  impossible  legally  to  do  what  was 
agreed. 

(b)  When  the  existence  of  a  specific  thing  is 
necessary,  its  destruction  will  discharge  the  con- 
tract, unless,  of  course,  one  of  the  parties  was  to 
blame.  Thus,  A  agrees  to  rent  a  hall  to  B.  The 
hall  burns  down  before  the  time  when  B  was  to 
occupy  it.    The  contract  is  discharged. 

(c)  When  one  party  has  agreed  to  work  for 
another,  the  death  or  disability  of  the  one  who  has 
agreed  to  do  the  work  will  discharge  the  contract. 

A  person  may  be  discharged  by  being  declared 
bankrupt. 


60  BANKING   FOR   BEGINNERS 


BANK  ETHICS 


In  the  business  of  banking  magnetic  personality 
means  much,  but  it  does  not  mean  everything.  There 
may  be  too  much  glad  hand  and  too  little  straight 
eye  and  perpendicular  conscience.  Palaver  and  en- 
tertainment may  get  some  new  bank  accounts,  but 
only  efficient  service  and  complete  confidence  can 
keep  them.  A  reputation  for  just  and  uniform  treat- 
ment of  customers  is  more  attractive  than  a  reputa- 
tion for  favoritism — even  to  favorites.  To  get  and 
keep  business,  as  well  as  to  get  and  keep  friends,  the 
good  and  true  in  ourselves  and  others,  and  not  the 
weak  and  vicious,  should  be  cultivated.  Associa- 
tions of  bankers.  State  and  National,  are  educating 
the  fraternity  in  professional  ethics,  and  as  a  result 
competition  is  now  directed  not  so  much  toward 
cutting  throats  as  toward  developing  new  business 
and  elevating  the  standard  of  the  banking  profes- 
sion. Bankers  as  a  class  are  honest  not  only  from 
inclination  but  from  necessity.  Character  is  the 
greater  part  of  their  capital,  and  its  impairment 
would  be  disastrous.  It  is  to  their  interest  not  only 
to  maintain  integrity  among  themselves,  but  to 
promote  integrity  in  others.  It  is  to  their  interest  to 
make  the  world  better  as  well  as  richer.  Self-inter- 
est may  not  be  the  ideal  motive  for  exalting  the 
golden  rule  and  decrying  the  golden  calf,  but  the 
presence  of  self-interest  does  not  imply  the  absence 
of  devout  sincerity  in  preaching  and  practicing  what 
is  right. — George  E.  Allen. 


CHAPTER  III 


Drafts  and  Acceptances 

WHAT  IS  A  DRAFT?— A  "draft"  is  a  written 
order  drawn  by  one  party  called  the  drawer  on 
another  party  called  the  drawee  for  the  payment 
of  money  to  a  third  party  called  the  payee,  the 
amount  to  be  charged  to  the  drawer.  The  terms 
"drafts"  and  "bills  of  exchange"  are  often  used  in 
referring  to  the  same  things.  When  either  "drafts" 
or  "bills  of  exchange"  are  referred  to  in  this  chap- 
ter the  remarks  made  will  apply  to  both  drafts 
and  bills.  For  instance,  A  owes  B  $1,000.  A  has 
$1,000  owing  him  by  C.  So  A  gives  B  a  piece 
of  paper  which  orders  C  to  pay  $1,000  to  B.  Drafts 
are  valuable  chiefly  because  they  are  negotiable — 
that  is,  B  could  endorse  the  above  draft  to  D,  who 
would  then  have  a  right  to  the  $1,000.  Drafts  fre- 
quently pass  through  many  hands  before  they  are 
presented  for  pa5mient. 

SIMPLE  FORM  OF  A  BILL  OF  EXCHANGE 


Chicago,  111.,  Dec.  21,  1916. 
Pay  to  the  order  of  Edward  March  one  thousand 
dollars  ($1,000).  HENRY  GRANT. 

To  Temple  Cole, 

211  Prairie  St., 

Cincinnati,  Ohio 


61 


62 


BANKING    FOR    BEGINNERS 


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BANKING    FOR    BEGINNERS  63 

THE  PARTIES.— There  are  always  three  par- 
ties to  a  draft:  (1)  the  drawer,  (2)  the  drawee 
(or  payer),  and  (3)  the  payee.  Only  a  drawee  may 
become  an  acceptor.  In  the  accompanying  illustra- 
tion A  is  the  drawer,  C  the  drawee,  and  B  the  payee. 
The  drawer  is  the  maker  or  person  who  orders 
one  person  to  pay  another.  The  drawee  is  the 
person  who  is  ordered  to  pay  the  money.  The 
payee  is  the  person  to  whom  the  money  is  to  be 
paid.  In  writing  a  draft  it  is  customary,  though 
not  necessary,  to  place  the  name  of  the  person 
who  is  to  pay  it — the  drawee — in  the  lower  left 
hand  corner.  (Checks  are  a  special  kind  of  bill  of 
exchange  and  are  considered  in  another  chapter.) 
The  bill  is  addressed  to  the  drawee.  He  may  be 
asked  to  show  his  intention  to  honor  the  bill— that 
is,  to  pay  it — and  if  he  does  so  he  becomes  an  "ac- 
ceptor." This  assent  is  usually  shown  by  writing 
his  name  with  the  word  "Accepted"  on  the  face  of 
the  bill. 

USES  OF  DRAFTS  IN  COMMERCE.— Drafts 
are  much  used  by  business  men  to  collect  accounts. 
For  instance.  A,  living  in  Minneapolis,  owes  B, 
a  dealer  in  Chicago,  $500  for  goods  purchased.  If 
A  does  not  send  the  money  after  a  certain  time, 
which  is  usually  specified  in  the  invoice,  then  B 
may  draw  a  draft  on  A  for  the  amount  due.  It 
would  be  in  substantially  this  form:  "To  A:  Pay 
to  C  $500.  B."  C  would  very  often  be  a  bank.  It 
might  in  this  case  either  be  a  Chicago  bank  or  B 


64  BANKING    FOR    BEGINNERS 

might  have  drawn  it  payable  to  some  bank  in  Min- 
neapolis. If  it  were  a  Chicago  bank  that  bank 
would  have  endorsed  it  to  some  bank  in  Minne- 
apolis and  sent  it  there  for  collection.  B  has  really 
made  the  Chicago  bank  his  agent  for  the  collection 

NOTICE    OF   IRREGULARITIES    IN    DRAFT 
DRAWN  ON  A  BANK  AND  PAID  BY  IT 


ST.  LOUIS,  MO. 


DEAR   SIRS:— YOUR   DRAFT   ON   US   NO. 


FOR  $ WAS  PRESENTED  TO  US  TODAY 

WITH  THE  IRREGULARITIES   NOTED  BELOW: 

IRREGULARITIES 


WE    PAID    THE    DRAFT,    HOWEVER,    BELIEVING  THIS   TO 
BE   IN    ACCORDANCE  WITH   YOUR   WISHES   AND   WE  WILL 
ASK  YOU  TO  KINDLY  CONFIRM  OUR  ACTION. 
YOURS  TRULY, 


CONFIRMATION. 

DATE 19 

TO  THE   NATIONAL  BANK, 

DEAR    SIRS:— WE    HEREBY    CONFIRM    YOUR    ACTION    IN 
PAYING  THE  ABOVE   DESCRIBED   DRAFT. 
YOURS  TRULY, 

ADDRESSEE  WILL  PLEASE  SIGN  AND  RETURN  THIS  SHEET 


BANKING    FOR    BEGINNERS  65 

of  the  money.  Or  he  may  have  sent  it  direct  to  the 
Minneapolis  bank.  In  either  case  the  Minneapolis 
banker,  when  he  gets  the  draft,  will  send  it  around 
to  A  by  one  of  the  clerks  whose  business  it  is  to 
look  after  collections.  If  A  is  willing  to  pay  the 
draft  he  writes  across  its  face  "Accepted,"  with  the 
date,  and  signs  his  name.  Of  course,  he  is  not 
bound  to  accept  it,  but  after  he  does  accept  it  he 
is  obliged  to  pay  it  when  it  becomes  due.  In  the 
case  of  a  "sight"  or  "demand"  draft,  acceptance 
can  be  shown  only  by  payment.  But  suppose  A 
had  lived  in  some  place  without  a  bank.  Then  B 
could  have  sent  the  draft  to  the  postmaster  or  some 
other  responsible  person  for  collection.  Very  small 
charges  are  made  by  banks  for  collecting  bills  of 
exchange.  Suppose  this  was  a  draft  payable  in 
thirty  days.  B  may  not  wish  to  wait  so  long  to 
get  his  money.  In  that  case,  the  bank  that  he  has 
constituted  his  agent  will,  after  the  draft  is  ac- 
cepted, discount  it — that  is,  credit  B  with  the 
amount  of  the  draft  less  the  interest  on  it,  calcu- 
lated from  the  date  the  draft  is  discounted  to  the 
date  the  draft  is  due. 

WHAT  DRAFTS  MUST  CONTAIN  TO  BE 
NEGOTIABLE.— Not  all  orders  are  negotiable— 
i.  e.,  capable  of  passing  from  one  person  to  another. 
A  simple  order,  "Pay  to  X,"  would  not  be  negoti- 
able, for  such  an  order  must  be  paid  to  X  and 
to  X  alone.  It  is  very  seldom  that  such  a  bill  is 
issued.    Usually  bills  are  made  in  such  a  way  that 


66  BANKING    FOR    BEGINNERS 

one  person  can  transfer  his  rights  to  another  per- 
son. That  is  one  reason  why  they  are  so  impor- 
tant in  the  business  world.  There  are  certain  quali- 
ties or  requisites  which  a  bill  or  draft  must  contain 
to  be  negotiable.    These  are  as  follows : 

(1)  It  must  be  in  writing  and  signed  by  the 
drawer. 

(2)  It  must  contain  an  unconditional  order  to 
pay  a  sum  certain  in  money. 

(3)  It  must  be  payable  on  demand  or  at  a  fixed 
or  determinable  future  time. 

(4)  It  must  be  payable  to  order  or  to  bearer. 

(5)  The  drawee  must  be  named  or  otherwise 
indicated  with  reasonable  certainty. 

A  BILL  OF  EXCHANGE  MUST  CONTAIN 
AN  ORDER. — It  must  in  imperative  terms  direct 
the  drawee  to  **Pay  to  A"  the  sum  specified.  There 
must  be  no  qualifying  statements.  A  request  to 
pay,  or  an  authority  to  collect  money  due,  is  not 
an  order,  though  it  is  often  hard  to  tell  from  the 
language  used  just  what  is  meant.  An  order  im- 
plies in  its  terms  a  right  to  command  and  a  duty 
to  obey.  Words  of  politeness,  however,  will  not 
deprive  an  order  of  its  imperative  quality.  "Please 
pay  X"  is  a  common  phrase,  but  is  held  to  be  an 
order.  The  following  was  held  to  be  a  bill  of 
exchange:  "Mr.  Nelson  will  oblige  Mr.  Webb  by 
paying  J.  Ruff,  or  order,  twenty  guineas  on  his 
account."  The  order  must  be  unconditional  on 
its  face.     If  a  bill  was  to  be  payable  only  if  some 


BANKING    FOR    BEGINNERS  67 

specified  event  should  happen  it  would  be  of  little 
value  in  business,  since  the  event  might  never  hap- 
pen. Even  if  the  event  should  afterwards  take 
place  the  instrument  would  not  then  become  a  bill. 
Suppose  A  has  two  accounts  with  the  firm  of  B 
and  draws  a  draft  on  B  in  the  following  words: 
"Please  pay  C,  or  order,  $500  and  charge  account 
No.  1."  Is  this  a  negotiable  instrument?  It  has 
been  held  to  be.  There  is  an  unqualified  order  to 
B  to  pay  C,  or  order,  the  $500  and  the  words  "charge 
account  No.  1"  are  only  an  indication  to  B  of  the 
account  to  which  the  bill  is  to  be  charged  after  it 
is  paid.  The  fact  that  the  consideration  may  be 
stated  does  not  make  the  instrument  conditional. 
Suppose  the  above  bill  had  read:  "Please  pay  C, 
or  order,  $500,  account  five  typewriters."  This  is 
still  an  unconditional  order  to  pay  C,  or  order,  and 
the  statement  of  the  consideration  does  not  affect  it. 
A  BILL  OF  EXCHANGE  "MUST  BE  PAY- 
ABLE ON  DEMAND  OR  AT  A  FIXED  OR  DE- 
TERMINABLE FUTURE  TIME."— There  must 
be  certainty  as  to  the  time  when  a  bill  will  be  due, 
or  no  one  would  take  it  from  anybody  else.  An 
instrument  is  payable  on  demand  (1)  where  it  is 
expressed  to  be  payable  on  demand,  or  at  sight,  or 
on  presentation;  or  (2)  where  no  time  of  payment 
is  stated.  An  instrument  is  payable  at  a  fixed  time 
if  it  says,  for  example,  "30  days  after  date."  An 
instrument  is  payable  at  a  determinable  time  when 
the  date  can  be  fixed  with  reference  to  the  happen- 


68  BANKING    FOR    BEGINNERS 

ing  of  an  event  certain  to  happen.  Death  is  sure 
to  come,  though  the  time  of  its  coming  is  uncertain, 
so  an  order  to  pay  thirty  days  after  death  would 
be  binding.  Suppose  an  order  said  "Pay  to  X  $500 
when  he  becomes  twenty-one  years  of  age."  This 
would  not  be  negotiable,  since  X  might  never  be- 
come twenty-one. 

THE  AMOUNT  TO  BE  PAID  MUST  BE 
CERTAIN.— If  the  bill  had  read  "$500  and  accrued 
taxes,"  then  it  would  not  be  negotiable,  for  the 
amount  payable  at  maturity  is  uncertain.  But 
stipulations  for  interest  at  a  given  rate,  or  for  the 
payment  of  costs  of  collection  and  attorney's  fees, 
if  not  paid  at  maturity,  do  not  affect  the  negotia- 
bility of  a  bill.  The  order  to  pay  must  be  to  pay 
money.  The  money  must  be  that  of  the  country 
where  the  order  is  payable.  For  instance,  a  note 
payable  in  Canada  but  made  in  Illinois  must  be 
payable  in  Canadian  money.  By  business  customs 
the  following  terms  mean  money :  "currency"  and 
"current  funds,"  so  a  bill  containing  an  order  to' 
pay  $500  in  "currency"  or  "current  funds"  will  be 
negotiable.  A  particular  kind  of  legal  tender  may 
be  designated,  such  as  gold  eagles  or  pennies. 
There  must  not  be  an  order  to  pay  money  and  (or) 
something  else.  An  order  "Pay  X  $500  and  give 
him  my  horse  Black  Star,"  or  *Tay  X  $500  or  give 
him  my  horse  Black  Star"  will  not  be  negotiable — 
the  payee  or  anybody  to  whom  the  bill  is  endorsed 
must  be  certain  of  getting  money  alone  if  he  wishes 


BANKING    FOR    BEGINNERS  69 

it.  But  if  X  was  to  have  the  choice  of  taking  the 
money  or  the  horse  it  would  be  all  right.  In  other 
words,  if  the  maker  of  a  note  has  the  election  of 
paying  money  or  giving  something  else,  the  note 
is  not  negotiable.  If  the  holder  has  the  option  of 
requiring  something  to  be  done  in  lieu  of  the  pay- 
ment of  money,  the  note  is  negotiable,  because  the 
holder  can  always  demand  money. 

KINDS  OF  DRAFTS.  — We  have  seen  that 
there  are  three  parties  to  a  bill.  A  party  may  make 
a  bill  payable  to  himself  and  thus,  while  there  will 
technically  be  three  persons  involved,  there  will 
actually  be  but  two  people — the  drawer  and  the 
drawee.  The  drawer  in  this  case  is  also  the  payee. 
Drafts  are  either  "personal  drafts"  or  "bank  drafts." 
Personal  drafts  are  orders  drawn  on  one  person  by 
another  to  pay  a  third  person.  Bank  drafts  are 
drawn  by  one  bank  on  another,  directing  the  latter 

FORM  OF  BANK  DRAFT. 


No.  801  Tacoma,  Wash.,  May  22,  1917. 

FIRST  NATIONAL  BANK  OF  TACOMA 

Pay  to  the  order  of  H.  Irving  Scott  ($1,081.50) 
One  thousand  and  eighty-one  and  50-100  Dollars. 

(Signature) 

Cashier, 

To  Com  Exchange  Bank, 

Chicago. 


70 


BANKING    FOR    BEGINNERS 


to  pay  a  certain  sum  of  money  to  a  third  party.  It 
is  simply  an  order  which  one  bank  draws  on  an- 
other bank.  Practically  all  banks  keep  funds  on 
deposit  in  banks  in  other  cities,  especially  in  the 
larger  financial  centers.  In  this  way  they  are  able 
to  meet  the  demands  of  customers  who  often  wish 
a  form  of  payment  that  will  be  accepted  without 
question.  Bank  drafts  pass  practically  as  cash 
almost  everywhere  in  the  country.  Drafts  on  New 
York  are  known  as  "New  York  Exchange."  Sup- 
pose that  Kane  &  Co.  of  Toledo  wish  to  send  $1,000 
to  a  firm  in  Buffalo  for  goods  to  be  shipped  imme- 
diately. They  send  to  their  bank  in  Toledo  a  check 
for  the  amount,  only  in  place  of  the  payee's  name 
they  write  the  words  "New  York  Draft."  Their 
bank  then  proceeds  to  make  out  a  draft  on  its  New 

CUSTOMER'S  APPLICATION  BLANK  FOR  DRAFTS. 


The 

Bought  by_ 


DRAFTS  WANTED 

National  Bank 


PAYABLE  TO  THE  ORDER  OF 


ON  WHAT  CITY 


BANKING    FOR    BEGINNERS  71 

York  correspondent,  payable  to  Kane  &  Co.,  for 
$1,000.  Kane  &  Co.  endorse  the  draft,  making  it 
payable  to  the  BuHalo  firm,  and  mail  it  to  the  lat- 
ter. By  having  the  draft  drawn  to  themselves, 
instead  of  to  the  Buffalo  people,  Kane  &  Co.  have 
an  instrument  which  serves  as  direct  evidence  of  the 
transaction,  and  when  endorsed  and  transferred  acts 
as  a  voucher.  Or  Kane  &  Co.,  instead  of  having 
themselves  made  the  payee,  might  have  had  the 
Buffalo  firm  made  the  payee. 

Bank  drafts  are  much  used  by  business  men  to 
send  remittances  of  money  from  one  part  of  the 
country  to  another,  and  are  probably  used  more 
for  that  purpose  than  any  other  method  of  payment. 
Nearly  all  banks  furnish  application  blanks  for 
drafts.  Drafts  are  either  "sight"  or  "time."  Sight 
drafts  are  payable  at  sight — on  demand ;  time  drafts 
are  either  payable  at  a  fixed  time  after  sight  or  after 
date  or  after  some  event  which  is  sure  to  happen. 

ENDORSEMENTS.  —  A  draft  may  be  trans- 
ferred from  one  person  to  another  by  endorsement 
when  it  is  made  payable  to  order.  When  payable 
to  bearer  no  endorsement  is  necessary  except  that 
it  is  customary  for  banks  to  induce,  as  far  as  possi- 
ble, the  person  receiving  the  proceeds  of  a  bearer 
draft  to  endorse  the  draft  in  order  that  there  may 
be  evidence  showing  who  received  the  money.  The 
person  who  makes  the  endorsement  is  the  "en- 
dorser"; the  one  to  whom  he  endorses  it  is  the 
"endorsee."     If  an  instrument  is  payable  to  the 


72 


BANKING    FOR    BEGINNERS 


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BANKING    FOR    BEGINNERS  73 

order  of  two  or  more  payees  or  endorsees  who  are 
not  partners,  then  all  must  endorse  when  the  bill 
is  given  to  anyone  else,  unless  the  one  who  does 
endorse  has  authority  to  endorse  for  the  others. 
Thus,  a  bill  is  payable  to  A  and  B.  A,  without 
authority  from  B,  endorses  it  to  C.  C,  however, 
does  not  get  the  title  to  the  bill,  because  the  transfer 
is  not  the  act  of  both  owners,  A  and  B  together 
being  the  owners  of  the  bill.  Suppose  the  bill  had 
been  payable  to  a  firm.  If  one  partner  endorses  it 
in  his  own  name  no  title  passes  to  the  endorsee, 
even  if  the  one  partner  has  been  authorized  by  all 
the  other  partners  to  endorse  it,  for  the  endorse- 
ment is  not  the  endorsement  of  all  the  owners.  The 
proper  way  is  to  endorse  it  in  the  firm  name.  To 
be  effective  an  endorsement  must  be  in  writing  on 
the  draft.  It  must  be  an  order  to  pay  the  endorsee 
(who  is  also  known  as  the  "transferee").  It  must 
direct  the  payment  to  the  transferee  of  the  whole 
sum  due  on  the  instrument.  Of  course  there  is  no 
objection  to  endorsing  a  draft  after  part  of  the  sum 
due  has  been  paid — provided  that  the  whole  of  what 
is  yet  due  is  directed  to  be  paid.  The  draft  with 
the  endorsement  on  it  must  be  "delivered"  to  the 
transferee.  "Delivery"  means  a  physical  transfer 
of  the  bill.  "Endorsement,"  as  used  in  this  con- 
nection, therefore  means  endorsement  and  delivery, 
both  of  which  must  occur.  Suppose  A,  the  payee 
of  a  bill,  wrote  on  it:  "Pay  to  C  (Signed)  A," 
and  put  it  in  his  safe.     The  endorsement  in  such 


74 


BANKING    FOR    BEGINNERS 


a  case  is  not  complete.  Let  us  imagine  that  C 
breaks  open  the  safe  and  steals  the  draft — the  en- 
dorsement is  then  complete.  Of  course  C  himself, 
because  he  is  a  thief,  cannot  take  advantage  of 
his  theft  by  trying  to  collect  on  it.  But  he  can 
transfer  it  to  an  innocent  purchaser  who  may  col- 
lect on  it. 


NOTICE  BY  BANK  OF  DRAFTS  DRAWN 


The  First  National  Bank 

1 9 1 

We  have  drawn  the  following  drafts  on  you  to-day 

NO. 

ORDER 

AMOUNT 

Yours  truly, 

Cashier. 

BANKING    FOR    BEGINNERS  75 

DIFFERENT  KINDS  OF  ENDORSEMENTS. 
—  Endorsements  may  be  "special,"  "in  blank," 
"restrictive,"  "qualified"  or  "conditional."  A  special 
endorsement  names  the  person  to  whom,  or  to 
whose  order,  the  instrument  is  to  be  made  payable ; 
the  endorsement  of  such  endorsee  is  necessary  to 
pass  the  bill  to  anybody  else.  Special  endorse- 
ments are  like  the  following:  "Pay  to  X  (signed) 
A";  "Pay  to  X  or  order  (signed)  A";  "Pay  to  the 
order  of  X  (signed)  A."  An  endorsement  in  blank 
occurs  when  the  payee  writes  his  name  on  the  in- 
strument without  naming  any  endorsee.  As  long 
as  the  payee's  endorsement  remains  "blank"  the 
draft  can  be  passed  from  one  person  to  another  by 
delivery  and  for  all  practical  purposes  can  be  re- 
garded as  payable  to  bearer.  However,  anyone 
who  gets  hold  of  a  draft  endorsed  in  blank  can 
change  it  from  a  blank  to  a  special  endorsement. 

A  "restrictive"  endorsement  is  one  which  either 
(1)  prohibits  the  further  passing  of  the  bill  or  (2) 
makes  the  endorsee  the  agent  of  the  endorser  or 
(3)  gives  the  title  in  trust  to  the  endorsee  for  the 
benefit  of  some  other  person.  "Pay  to  X  only"  is 
an  example.  To  make  an  endorsement  restrictive 
there  must  be  words  in  the  endorsement  itself 
which  specifically  render  it  so.  Endorsements 
making  the  endorsee  agent  or  trustee  of  the  en- 
dorser are  the  most  common  kind  of  restrictive 
endorsements.  Endorsements  "for  collection"  are 
perhaps  the  commonest  form  of  restrictive  endorse- 


76  BANKING    FOR    BEGINNERS 

EXAMPLES   OF  ENDORSEMENTS 

Draft:     To  Carter  &  Co.:  Pay  to  Allan  Young 
$500.  (Signed)     WENDELL   BURNS. 

Blank   Endorsement:  ALLAN    YOUNG. 

Special    Endorsement:    Pay   to   order   of   James 
Knight.  ALLAN  YOUNG. 

Qualified  Endorsement:     Without  recourse. 

ALLAN  YOUNG, 
or 
Pay  to  James  Knight,  without  recourse. 

ALLAN  YOUNG. 
Restrictive  Endorsement:    Pay  to  James  Knight 
for  collection.  ALLAN  YOUNG. 

or 
Pay  to  Bank  X,  for  collection  for  my  account. 

ALLAN  YOUNG, 
or 
Pay  to  James  Knight  for  my  use. 

ALLAN  YOUNG. 
Conditional  Endorsement:    Pay  to  James  Knight 
or  order  if  .   .  .  ALLAN  YOUNG. 

Wsdving  conditions :    Waiving  protest. 

ALLAN  YOUNG, 
or 
Pay  to  James  Knight,  waiving  protest. 

ALLAN  YOUNG. 
There  may  be  successive  endorsements  as  follows: 
Pay  to  James  Knight.  ALLAN  YOUNG. 

Pay  to  Herog  &  Kastner.     JAMES  KNIGHT. 
Pay  to  George  Vincent. 

HERZOG  &  KASTNER. 

etc.,  etc. 


BANKING    FOR    BEGINNERS  77 

ment.  Other  examples  are  "Pay  to  X  for  account 
of  A  (signed)  A"  or  "Pay  to  X  for  my  use  (signed) 
A."  This  sort  of  endorsement  notifies  anyone  who 
may  take  the  bill  from  X  that  X  is  not  the  real 
owner,  but  only  an  agent.  So  if  X  should  pass  it 
to  Y,  and  Y  should  get  any  money  on  it,  A  would 
have  a  right  to  all  Y  had  received. 

When  A  endorses  a  bill  to  X,  either  by  a  special 
or  blank  endorsement,  he  guarantees  that  if  the 
maker  or  acceptor  (drawee)  does  not  pay,  he  will. 
Suppose  he  does  not  wish  to  assume  this  risk. 
Then  he  can  give  a  "qualified"  endorsement. 
"Without  recourse"  and  "not  holden"  are  ex- 
amples of  such  endorsements.  The  only  effect  is 
to  do  away  with  his  obligation  to  pay  if  the  maker 
or  drawee  does  not.  The  bill  can  still  be  negoti- 
ated. 

The  following  would  be  a  "conditional"  endorse- 
ment: "Pay  to  X,  or  order,  if  I  become  captain 
in  the  New  York  Infantry  within  sixty  days. 
(Signed)  A."  The  party  required  to  pay  the  instru- 
ment may  disregard  the  condition  and  pay  the 
endorsee  or  his  transferee  whether  the  condition 
has  been  fulfilled  or  not.  But  the  endorsee  would 
hold  the  bill  or  any  money  he  might  get  from  it 
subject  to  the  rights  of  the  person  who  endorsed 
conditionally.  In  the  above  case  let  us  suppose 
that  P,  the  payee,  paid  the  amount  of  the  note  to 
X.  A  does  not  become  a  captain.  He  cannot  col- 
lect again  from  P,  but  he  can  get  from  X  the  money 


78  BANKING    FOR    BEGINNERS 

that  the  latter  received  from  P.  Or  if  X  had  not 
collected  from  P  then  A  could  get  the  bill  from  X 
or  from  anybody  to  whom  it  had  come. 

ENDORSEMENT  "FOR  COLLECTION."— 
Sometimes  a  person  holding  a  bill  finds  that  it  is 
necessary  to  send  it  for  collection  to  some  place 
where  there  is  no  bank.  Then  he  must  ask  some- 
one else  to  collect  it  for  him.  If  he  knows  the 
person  very  well  he  may  simply  endorse  it  to  the 
other  person,  but  there  is  always  a  slight  danger 
that  the  other  person  would  pass  it  on,  which  he 
could  legally  do,  so  it  is  best  in  such  cases  to  add 
the  words  "for  collection"  to  the  endorsement. 
This  checks  any  further  passing  of  the  bill,  since 
anyone  to  whom  it  is  offered  can  easily  see  that  it 
was  the  business  of  the  person  to  whom  it  was 
endorsed  to  collect  it  for  the  endorser.  Endorse- 
ment "for  collection"  is  also  used  when  there  is 
doubt  concerning  the  goodness  of  a  check  or  a 
draft  payable  elsewhere  at  a  future  date.  Some 
banks  refuse  to  accept  drafts  endorsed  "for  col- 
lection." Suppose  X  has  endorsed  to  A  bank  "for 
collection."  A  bank,  to  make  collection  easier, 
employs  B  bank  to  do  the  actual  collecting.  B 
bank  then  holds  the  money  it  gets  for  X's  benefit, 
i"«t  as  A  bank  would  have  done. 

ACCEPTANCES.  —  Until  the  drawee  of  a  bill 
accepts  it  he  is  under  no  liability.  Of  course  the 
drawer  might  sue  the  drawee  for  not  honoring 
(accepting)  the  bill,  but  the  holder  of  the  bill  could 


BANKING    FOR    BEGINNERS  79 

not  make  the  drawee  pay  him.  An  acceptance 
usually  takes  the  form  of  writing  on  the  face  of  the 
bill  ^'Accepted"  and  the  drawee's  signature.  Only 
the  drawee  can  accept — he  then  becomes  the  "ac- 
ceptor." His  acceptance  really  means  that  he  says : 
"I  am  indebted  to  the  drawer  for  the  sum  named 
in  the  bill  and  hereby  guarantee  that  I  will  pay  the 
bill  according  to  its  terms  and  charge  the  amount 

FORM  OF  COMMERCIAL  SIGHT  DRAFT. 


$500.00  Minneapolis,  Minn.,  July  3,  1917. 

At  sight — Pay  to  the  Order  of  Federal  City  Bank 
of  Minneapolis  Five  hundred  and  no/100  Dollars. 
With  Exchange. 

Value  received  and  charge  to  account  of 

To  George  H.  Jones, 

Winona,  Minn.  Peter  Simpson. 


A  SAMPLE  ACCEPTANCE. 


"Accepted  July  10,  1917. 

Payable  at  Flour  Exchange  Bank. 
George  H.  Jones." 


These  words  would  be  written  across  the  face  of  the  bill  by 
Jones,  usually  in  red  ink. 


80  BANKING    FOR    BEGINNERS 

to  the  drawer's  account."  In  other  words,  he  makes 
a  contract  that  he  will  pay  the  bill  according  to  the 
terms  of  his  acceptance.  The  acceptance  must  be 
in  writing.  It  need  not  be  on  the  bill,  but  may  be 
on  a  separate  piece  of  paper  or  even  by  telegraph. 
A  prospective  drawee  may  make  a  contract  with  the 
drawer  to  accept  a  bill  to  be  drawn.  Whether  oral 
or  in  writing  this  contract  is  binding.  The  fact  that 
a  bill  has  been  accepted  adds,  of  course,  to  its  ne- 
gotiability, for  people  are  more  willing  to  take  it. 
When  the  bill  is  presented  to  a  drawee  for  accept- 
ance he  is  allowed  twenty-four  hours  to  decide 
whether  he  will  accept  it  or  not. 

When  a  draft  is  sent  "with  exchange"  the  drawee 
pays  the  face  of  the  draft  and  the  exchange  charges 
also.  Otherwise  the  collecting  clerk  of  the  bank 
deducts  the  charges  when  remitting  the  money 
collected  to  the  person  who  has  sent  the  draft  to 
the  bank  "for  collection." 

ACCEPTANCES  ARE  GENERAL  OR  QUAL- 
IFIED.— A  "general"  acceptance  makes  no  quali- 
fication to  the  order  of  the  drawer;  a  "qualified" 
acceptance  changes  the  bill  as  it  was  drawn  by  the 
drawer.  An  acceptance  is  qualified  which  makes 
payment  depend  on  any  condition,  or  is  only  for 
a  part  of  the  amount  specified,  or  changes  the  time 
or  place  of  payment.  The  holder  may  require  an 
unqualified  acceptance  or  treat  the  bill  as  dis- 
honored (dishonor  will  be  considered  in  the  follow- 
ing paragraph).    The  holder  may  take  a  qualified 


BANKING    FOR    BEGINNERS  81 

acceptance,  but  if  he  does  so  the  drawer  and  en- 
dorsers are  discharged  from  liability  on  the  bill 
unless  they  assent  to  it  after  becoming  aware  of  it. 
They  will  be  held  to  have  assented  unless  within 
a  reasonable  time  after  acquiring  knowledge  of  the 
circumstances  they  notify  the  holder  that  they  have 
not  thus  assented.  Many  business  men  dislike  to 
have  drafts  drawn  on  them.  It  is  best,  therefore, 
not  to  draw  on  a  person  unless  you  have  notified 
him  of  your  intention  to  do  so. 

DISHONORING   A    DRAFT.— A  person  who 
refuses  to  pay  or  to  accept  a  draft  drawn  on  him 

STANDARD  "NOTICE  OF  DISHONOR"  FORM 
USED  BY  NOTARIES. 


Chicago,  111.,  Sept.  11,  1915. 
PLEASE  TO  TAKE  NOTICE  that  a  draft  drawn 
by  Ralph  Clark  for  $1,000  and  interest,  dated  July 
10,  1915,  payable  at  the  Union  National  Bank,  Sept. 
10,  1915,  and  endorsed  by  you,  has  been  dishonored, 
payment  having  been  duly  demanded  at  its  maturity 
and  refused,  and  that  said  draft  has  therefore  been 
PROTESTED  for  non-payment  and  that  the  hold- 
ers look  to  you  for  payment  thereof,  and  of  all  dam- 
ages, costs  and  charges  thereon. 
Yours  very  truly, 

PAUL  HAMMER,  Notary  Public. 

Union  National  Bank. 
To  JOHN  SMITH. 


82  BANKING    FOR    BEGINNERS 

SPECIMEN  CERTIFICATE  OF  PROTEST. 


United  States  of  America, 
State  of  Illinois, 

City  of  Chicago. 

On  the  19th  day  of  March,  1908,  at  the  request  of 
the  Union  National  Bank,  I,  Paul  Hammer,  a  Notary 
Public  of  the  State  of  Illinois,  duly  commissioned 
and  sworn,  did  present  the  original  Draft  hereunto 
annexed,  at  the  Union  National  Bank,  No.  410  State 
Street,  Chicago,  the  place  at  which  it  was  payable, 
and  demanded  payment,  which  was  refused,  


Whereupon,  I,  the  said  notary,  at  the  request 
aforesaid,  did  Protest,  and  by  these  presents  do  pub- 
licly and  Solemnly  Protest,  as  well  against  the  En- 
dorser of  the  said  draft  as  against  all  others  whom  it 
doth  or  may  concern,  for  exchange,  re-exchange,  and 
all  costs,  damages,  and  interest  already  incurred 
and  to  be  hereafter  incurred  for  want  of  payment  of 
the  same. 

Thus  done  and  protested  in  the  City  of  Chicago 
aforesaid. 

PAUL  HAMMER,  Notary  Pubhc, 
Union  National  Bank. 

(Notary's) 
(     Seal     ) 


BANKING    FOR    BEGINNERS  83 

is  said  to  have  "dishonored"  it.  The  drawer,  of 
course,  must  make  good  any  drafts  he  has  given 
to  anyone  which  have  been  dishonored.  When  a 
draft  is  dishonored  the  holder  is  entitled  to  imme- 
diate payment  from  the  drawer  or  endorsers,  even 
though  it  may  not  be  due  for  months  or  years.  The 
drawer  and  endorsers  must  be  notified  either  orally 
or  in  writing  that  the  draft  has  been  dishonored, 
and  steps  must  be  taken  within  the  same  day  to 
give  them  the  notice  they  are  entitled  to  receive. 
Drawer  or  endorser  may  waive  the  requirement  of 
notice.  But  a  failure  to  notify  them,  unless  they 
waive  their  right,  will  discharge  them,  except  as 
against  a  later  innocent  purchaser  (one  who  did 
not  know  the  bill  had  been  dishonored). 

NOTICE  OF  DISHONOR.— The  notice  of  dis- 
honor may  be  in  writing  or  oral,  and  may  be  given 
personally  or  through  the  mails.  It  may  be  quite 
informal,  and  is  sufficient  if  it  fairly  identifies  the 
draft  and  indicates  that  it  has  been  dishonored. 
The  notice  may  be  given  by  the  holder  or  anyone 
who  would  be  liable  to  the  holder  and  who  upon 
taking  it  up  would  have  a  right  of  reimbursement 
from  the  party  to  whom  he  gives  notice.  The 
holder  or  other  person  may  give  the  notice  per- 
sonally or  it  may  be  given  in  their  behalf  by  some- 
one else. 

PROTEST  OF  DRAFTS.— Protest  is  a  declar- 
ation by  a  notary  public  in  behalf  of  the  holder  of 
a  bill  that  it  has  been  dishonored  and  a  "protest" 


84  BANKING    FOR    BEGINNERS 

that  any  loss  arising  shall  be  borne  by  the  drawer 
or  endorsers.  In  the  case  of  foreign  bills  (drawn 
in  one  State  and  payable  in  another)  protest  is 
absolutely  necessary.  In  the  case  of  inland  bills 
(payable  in  the  same  State  it  is  drawn  in)  it  may 
be  made.    In  most  banks  some  clerk  is  a  notary. 

The  protest  is  required  to  be  annexed  to  the  bill 
or  must  contain  a  copy  of  it,  and  must  be  under  the 
hand  and  seal  of  the  notary  making  it,  and  must 
specify : 

(1)  The  time  and  place  of  presentment. 

(2)  The  fact  that  presentment  was  made  and 
the  manner  of  presentment. 

(3)  The  cause  or  reason  for  protesting  the  bill. 

(4)  The  demand  made  and  the  answer  given, 
if  there  was  any.  Or  the  fact  that  the  drawee  or 
acceptor  could  not  be  found. 

If  neither  the  place  of  drawing  or  the  place  of 
payment  appears  on  the  bill  the  holder  may  treat 
it  as  an  inland  bill.  This  relieves  him  of  the  neces- 
sity of  determining  at  his  peril  whether  a  protest 
is  necessary.  To  fix  the  liability  of  the  drawer  and 
endorsers  of  bills  of  exchange  there  must  be  for 
both  inland  and  foreign  bills  a  due  presentment 
for  acceptance  or  payment  and  due  notice  of  dis- 
honor. In  the  case  of  foreign  bills  an  additional 
act — protesting  the  bill — must  be  performed. 


CHAPTER  IV 


Promissory  Notes  and  Discounts 

WHAT  IS  A  PROMISSORY  NOTE?  — A 
promissory  note  is  a  promise  made  in  writing  by 
one  party,  called  the  maker,  to  pay  a  sum  of  money 
on  demand  or  at  a  fixed  or  determinable  future 
time,  to  another  party,  called  the  payee,  or  to  his 
order.  Promissory  notes  and  bills  of  exchange  are 
written  contracts.  Consideration  is  always  held 
to  exist  in  the  case  of  bills  and  promissory  notes 
until  it  is  positively  shown  that  it  does  not.  The 
accompanying  simple  form  of  promissory  note 
signed  by  Philip  Smith  might  have  read:  "On  de- 
mand after  date"  and  "to  John  Wagner  or  order," 
and  the  provision  for  interest  might  be  omitted. 
In  the  accompanying  form  of  note,  Philip  Smith  is 
the  "maker"  and  John  Wagner  is  the  "payee."  A 
promissory  note  must  contain  an  unconditional 
promise  to  pay  in  money  a  definite  sum.  Usually 
the  words  "I  promise  to  pay"  are  used,  but  they 
are  not  necessary.  Any  words  which  mean  the 
same  thing  may  be  used.  For  instance,  the  words 
"Good  to  bearer"  just  as  clearly  show  a  promise  to 
pay.  But  mere  admissions  of  debt  are  not  suffi- 
cient. Thus,  such  phrases  as  "I  owe  X" ;  "Due  X" ; 
"I.  O.  U.,"  etc.,  merely  admit  that  a  debt  exists 
and  are  not  promises  to  pay  the  debt.  Like  bills, 
promissory  notes  are  either  "demand"  or  "time." 

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They  may  be  issued  by  firms  and  governments  and 
institutions,  as  well  as  by  private  individuals.  Bank 
notes,  United  States  notes  and  certificates  of  de- 
posit are  forms  of  promissory  notes. 

SIMPLE  FORM  OF  PROMISSORY  NOTE. 


Minneapolis,  Minn.,  July  3,  1917. 

Two  months  after  date  I  promise  to  pay  to  the 
order  of  John  Wagner  five  hundred  dollars,  with 
interest  at  six  per  cent. 

PHILIP  SMITH. 


USES  OF  PROMISSORY  NOTES.— Suppose 
A  buys  from  B  $1,000  worth  of  merchandise.  If 
he  is  not  able  to  pay  in  cash,  or  does  not  wish  to 
do  so,  he  may  give  B  his  promissory  note.  This 
is  but  a  promise  to  pay  B  either  on  demand  or  at 
some  fixed  or  determinable  future  time.  Or  he  may 
himself  have  a  promissory  note  issued  by  C.  He 
may  endorse  this  and  give  it  to  B  and  pay  for 
his  own  debt  in  this  way.  The  seller  is  not  com- 
pelled to  accept  a  promissory  note.  The  business 
reputation  of  the  buyer  is  of  much  importance  to 
a  man  in  deciding  whether  he  will  accept  a  prom- 
issory note  from  him  or  not,  just  as  it  is  to  a  bank 
when  the  man  vdshes  to  get  money  from  it.  The 
written  promise  is  better  than  a  verbal  one  because 
it  is  easier  to  prove  in  court.     The  advantage  of 


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promissory  notes  to  a  business  man  is  that  he  can 
use  them  to  pay  his  own  debts  or  to  get  money 
from  a  note  broker  or  at  a  bank.  It  also  sets  a 
specific  date  for  payment;  and  dishonor  of  a  note 
is  more  feared  by  the  business  man  than  mere  slow- 
ness in  payment  of  an  open  account. 

ENDORSEMENT.— To  endorse  a  note,  which 
enables  some  other  person  to  collect  on  it,  the  payee 
writes  his  name  across  the  back  of  it.  This  makes 
the  payee,  like  the  maker,  responsible  for  the  pay- 
ment of  the  note.  The  person  to  whom  he  has 
endorsed  it  may  endorse  it  to  some  other  person 
(unless  the  first  endorsement  was  a  special  endorse- 
ment). All  those  who  endorse  a  note  are  liable 
for  the  payment  of  it,  except  when  the  endorse- 
ment is  qualified.  Notes  which  have  only  one 
person  responsible  for  their  payment  are  called 
"single-name  paper";  those  having  two  or  more 
responsible  signers  are  called  "double-name"  or 
"three-name"  paper.  When  the  maker  draws  a 
note  payable  to  himself,  it  is  not  complete  until 
he  has  endorsed  it.  The  rules  regarding  endorse- 
ment of  notes  are  the  same  as  for  drafts,  as  pre- 
viously explained. 

NEGOTIATION.— The  essential  characteristic 
of  promissory  notes  is  the  same  as  that  of  bills — 
the  fact  that  they  can  be  passed  from  one  person 
to  another.  This  negotiation  is  effected  either  (1) 
by  merely  handing  it  from  one  person  to  another 
when  the  note  is  made  payable  "to  bearer"  or  where 


90  BANKING    FOR    BEGINNERS 

the  endorsement  is  "in  blank,"  or  (2)  by  endorse- 
ment. It  will  be  remembered  that  a  draft  must 
have  certain  things  present  in  order  to  be  nego- 
tiable. The  same  things  are  necessary  with  promis- 
sory notes,  viz:  (1)  It  must  be  in  writing  and 
signed  by  the  maker;  (2)  it  must  contain  an  un- 
conditional promise  to  pay  a  definite  sum  in  money; 
(3)  it  must  be  payable  on  demand,  or  at  some  fixed 
or  determinable  future  time;  (4)  it  must  be  pay- 
able to  order  or  to  bearer.  A  summary  of  the  for- 
mal requisites  of  a  note  which  make  it  negotiable 
would  give  us  the  following  (from  the  Negotiable 
Instruments  Law) :  "A  negotiable  promissory 
note  is  an  unconditional  promise  in  writing  made 
by  one  person  to  another,  signed  by  the  maker, 
engaging  to  pay  on  demand,  or  at  a  fixed  or  deter- 
minable future  time,  a  sum  certain  in  money  to 
order,  or  to  bearer."  A  note  may  be  non-negotiable 
if  the  words  "bearer"  or  "order"  do  not  appear  on 
its  face. 

MONEY— LEGAL  TENDER.— Notes  and  bills 
must  be  paid  in  money;  that  is,  in  "legal  tender." 
The  efficient  bank  representative  must  know  the 
rule  concerning  legal  tender  as  applied  to  money 
in  the  United  States.  Let  us  consider,  first,  the 
reasons  for  such  rules  regarding  legal  tender ;  and, 
second,  the  rules  as  they  now  stand.  Debtors  who 
wish  to  liquidate  their  debts  must  know  with  what 
the  debt  may  be  paid  and  the  debtors  released. 
Since  debts  are  usually  drawn  in  terms  of  "dollars," 


BANKING    FOR    BEGINNERS  91 

it  is  of  importance  to  know  just  what  a  dollar  is 
when  it  comes  to  securing  release  from  debt.  For 
if  it  could  be  proved  that  the  debtor  had  not  offered 
"dollars,"  he  would  not  be  released  from  the  obli- 
gation. To  cover  this  situation,  laws  have  been 
enacted  stating  what  the  courts  shall  recognize  as 
legal  "dollars"  for  debt  payments.  These  laws 
enumerate  the  terms  and  kinds  of  money  that  may 
be  tendered  to  pay  a  debt.  These  forms  of  money 
and  this  quality  of  certain  kinds  of  money  is  known 
as  legal  tender.  All  other  forms  of  money  or  of 
payment  are  not  legal  tender,  though,  indeed,  they 
may  be  acceptable  tender.  It  is  of  importance  to 
know  what  forms  of  money  are  legal  tender  when 
the  creditor  for  some  reason  does  not  wish  to  be 
paid  the  amount  of  the  debt.  An  illustration  of 
such  a  debtor  might  be  one  who  had  given  a  long 
term  option  on  land  that  has  unexpectedly  and 
suddenly  realized  a  great  rise  in  value.  The  follow- 
ing are  the  various  kinds  of  United  States  money 
and  currency  and  their  legal  tender  qualities: 

1.  Gold  coin,  legal  tender  to  an  unlimited 
amount  and  everywhere. 

2.  Silver  dollars,  legal  tender  to  an  unlimited 
amount  and  everywhere. 

3.  Treasury  notes  of  1890,  legal  tender  to  an 
unlimited  amount  and  everywhere. 

4.  Subsidiary  silver  (halves,  quarters  and 
dimes),  legal  tender  to  the  amount  of  $10  and 
everywhere. 


92  BANKING    FOR    BEGINNERS 

5.  Minor  coins  (nickels  and  cents),  legal  tender 
to  the  amount  of  twenty-five  cents  and  everywhere. 

6.  United  States  notes,  legal  tender  to  an  un- 
limited amount  but  not  in  payment  of  duties  on 
imports  or  interest  on  the  public  debt. 

7.  Gold  certificates,  not  legal  tender  but  receiv- 
able for  all  public  dues. 

8.  Silver  certificates,  not  legal  tender  but  re- 
ceivable for  all  public  dues. 

9.  National  bank  notes,  not  legal  tender  but 
receivable  for  all  public  dues  except  duties  on  im- 
ports. All  National  banks  are  required  by  law 
to  receive  the  notes  of  other  National  banks  at  par. 

10.  Federal  Reserve  notes,  not  legal  tender  but 
receivable  by  all  national  and  member  banks  and 
Federal  Reserve  Banks  for  taxes,  customs  and 
other  public  dues. 

11.  Federal  Reserve  Bank  notes,  not  legal  ten- 
der but  receivable  for  all  public  dues  except  duties 
on  imports. 

JOINT  MAKERS. — Suppose  A  purchases  goods 
from  B  and  wishes  to  give  the  latter  his  promis- 
sory note.  B  will  not  accept  A's  note  unless  A 
gets  someone  to  sign  with  him  to  insure  pay- 
ment of  the  note  when  it  becomes  due.  So  A  gets 
C  to  sign  with  him.  Then  A  and  C  are  "joint 
makers,"  and  C  is  liable  on  the  note  if  A  refuses 
to  pay  it  when  it  becomes  due,  whether  he  has 
been  notified  of  A's  failure  to  pay  or  not.  This 
would  be  so  even  if  he  had  signed  his  name  on  the 


BANKING    FOR    BEGINNERS  93 

back  of  the  note,  where  an  endorser  does,  before 
delivery  to  the  payee. 

INTEREST. — Interest  is  compensation  paid  for 
the  use  of  money — either  money  borrowed  directly 
or  on  an  account  due  or  for  other  obligations.  Notes 
are  either  interest  bearing  or  non-interest  bearing, 
as  the  notes  provide.  Interest  is  either  "simple" 
or  "compound."  "Simple"  interest  is  a  sum  paid 
for  the  use  of  the  principal  only.  But  sometimes 
the  interest  for  a  certain  period  is  added  to  the 
principal  and  the  interest  for  the  next  period  is 
on  this  principal  and  interest  added  together;  the 
interest  on  the  total  is  "compound"  interest.  Sup- 
pose A  loans  B  $1,000  on  a  promissory  note  due 
in  two  years,  to  draw  interest  at  six  per  cent. 
Under  simple  interest  A  would  get  $1,120  at  the 
maturity  of  the  note.  But  suppose  the  note  con- 
tained a  provision  that  interest  should  be  com- 
pounded. Then  at  the  end  of  the  first  year  the 
interest  ($60)  would  be  added  and  the  new  prin- 
cipal for  the  second  year  would  be  $1,060,  so  that 
when  the  note  beccime  due  A  would  get  $1,123.60. 
Unless  specifically  stated  otherwise,  interest  is 
simple.  If  interest  is  not  paid  when  due,  interest 
on  the  unpaid  interest  cannot  generally  be  col- 
lected. Banks  usually  collect  interest  in  advance 
on  their  discounts  of  commercial  paper. 

DATE  OF  MATURITY.  —  Formerly  three 
"days  of  grace"  were  allowed  to  all  persons  obliged 
to  pay  notes — that  is,  three  days  beyond  the  time 


94  BANKING    FOR    BEGINNERS 

when  one  would  expect  them  to  become  due.  This 
has  been  abolished  now  in  all  or  nearly  all  the 
States  and  an  instrument  matures  on  the  date  fixed. 
Bankers  should  become  acquainted  with  the  pro- 
visions of  the  law  on  this  point  in  their  own  State. 
If  a  note  is  made  payable  a  number  of  days  after 
date,  the  day  it  was  drawn  is  excluded  in  deter- 
mining the  due  date  of  the  note.  If  a  note 
dated  May  10th  is  payable  thirty  days  after  date, 
it  is  due  June  9th.  Suppose  June  9th  falls  on  a 
Sunday  or  a  legal  holiday,  then  the  note  is  due  on 
the  next  business  day.  If  the  note  had  been  dated 
May  10th  and  made  payable  one  month  from  date, 
it  would  have  been  payable  June  10th.  The  pre- 
sentment for  payment  must  be  made  on  the  day 
the  note  is  due  and  at  a  reasonable  hour.  If  a  note 
is  issued  reading  "with  interest,"  but  without  any 
provision  as  to  the  rate  of  interest,  then  the  rate 
will  be  the  legal  rate  provided  by  the  State  law. 
Students  should  learn  the  legal  rate  of  the  State 
in  which  their  bank  is  located.  If  no  part  of  the 
principal  or  interest  of  a  note  is  paid  within  a  cer- 
tain time  after  maturity,  it  is  said  to  be  "outlawed" 
and  cannot  be  collected.  See  the  statute  of  lim- 
itations in  your  own  State.  In  most  jurisdictions, 
notes  that  are  payable  "on  demand"  do  not  draw 
interest  before  they  are  presented  for  payment 
(notes  are  not  presented  for  "acceptance,"  as  bills 
are)  unless  they  contain  an  express  provision  pro- 
viding for  interest.    However,  after  they  have  been 


BANKING    FOR    BEGINNERS  95 

presented  for  payment  they  draw  the  legal  rate 
until  paid,  even  though  it  has  not  been  mentioned 
in  the  note.  In  some  jurisdictions,  however,  it  has 
been  held  that  an  obligation  to  pay  money  on 
demand  is  payable  immediately,  and  that  interest 
is  recoverable  from  its  date.  When  bills  or  notes 
are  payable  on  demand  the  payee  or  holder  is  en- 
titled to  payment  upon  delivery.  But  presentment 
must  be  made  within  a  reasonable  time  after  the 
note  (or  bill)  is  issued.  The  question  as  to  what 
is  a  reasonable  time  is  one  which  depends  on  the 
nature  of  the  instrument,  the  usage  of  trade  or  busi- 
ness with  respect  to  such  instruments,  and  the  facts 
of  the  particular  case. 

PLACE  OF  PAYMENT.  —  Presentment  for 
payment  must  always  be  made  at  the  place  named 
in  the  note  (the  same  rule  applies  to  bills).  Sup- 
pose the  note  reads  "payable  at  the  Italian-Ameri- 
can Bank" — then  it  must  be  presented  for  payment 
at  that  bank.  But  suppose  the  note  had  simply 
said :  "Payable  in  Chicago" — then  the  presentment 
must  be  at  the  maker's  place  of  business  or  resi- 
dence in  Chicago.  If  he  has  neither  a  residence  or 
place  of  business  in  Chicago,  then  the  presence  of 
the  note  (or  bill)  in  Chicago  in  the  hands  of  the 
holder  or  his  agent  authorized  to  collect,  is  the  cor- 
rect mode  of  presentment.  The  most  convenient 
way  of  presenting  a  bill  or  note  which  is  made  pay- 
able in  a  city  or  town  is  to  send  it  "for  collection" 
to  a  bank  of  that  place.     If  the  draft  or  note  is 


96  BANKING    FOR    BEGINNERS 

payable  at  a  bank,  it  is  sufficient  presentment  if 
the  paper  is  at  the  bank  where  it  is  payable  when 
it  becomes  due  and  the  bank  knows  that  it  is  there. 
Many  times,  however,  notes  (and  bills)  do  not 
specify  a  place  of  payment.  Then  it  is  payable  at 
the  maker's  place  of  business  or  his  residence 
(drawee's  in  case  of  a  bill) ;  when  he  has  a  known 
place  of  business  that  should  be  given  preference 
over  his  residence,  though  the  holder  may  present 
it  at  either  one.  He  is  not  bound  to  present  it  at 
both  the  residence  and  place  of  business,  even  if  he 
finds  no  one,  at  the  place  he  chooses,  to  present  it  to. 
And  if  the  maker  has  a  residence  or  place  of  busi- 
ness, then  a  personal  presentment  to  him — for  in- 
stance, a  presentment  in  a  club  or  on  the  street — 
will  not  be  sufficient.  But  it  may  happen  that  no 
place  of  payment  is  named  and  the  maker  has 
neither  a  place  of  business  nor  a  residence.  Then 
it  will  be  a  good  presentment  if  the  holder  is  present 
with  the  paper  and  ready  to  be  paid  at  the  place 
where  the  contract  was  made.  The  presentment 
will  also  be  good  if  presented  to  the  maker  person- 
ally wherever  he  can  be  found,  or  if  made  at  his  last 
known  residence  or  place  of  business.  Presentment 
for  payment  is  dispensed  with  when  after  the  ex- 
ercise of  reasonable  diligence  it  cannot  be  made. 
These  rules  apply  also  to  bills  of  exchange.  It 
is  a  matter  of  convenience,  and  something  that  will 
be  appreciated,  to  send  to  the  maker  notice  of  the 
maturity  of  a  note  several  days  before  it  becomes 


BANKING    FOR    BEGINNERS  97 

due.  The  maker  may  dispense  with  the  making 
of  any  demand,  or  the  giving  of  any  notice,  by 
putting  the  words  "waiving  demand  and  notice" 
in  the  note.  Endorsers  may  do  the  same,  as  regards 
their  own  rights  to  notice.  The  same  provisions 
as  to  "protest"  and  "notice"  apply  to  promissory 
notes  as  apply  to  bills  of  exchange. 

PARTIAL  PAYMENTS.  — The  holder  of  an 
instrument  has  a  right  to  payment  in  full  when 
a  note  becomes  due.  But  he  may,  if  he  wishes,  let 
the  maker  pay  in  installments  when  he  cannot  pay 
the  full  amount.  Care  must  be  taken  in  such  cases 
to  compute  exactly  the  amount  due  in  principal 
and  interest  at  every  payment.  Partial  payments 
should  be  endorsed  on  the  instrument  in  some  such 
form  as  "Received  on  the  within  note  $50  Jan. 
7,  1916.     (Signed)  Henry  J.  Peters." 

COLLATERAL  WITH  NOTES.— The  maker 
of  a  note,  in  order  to  get  money  on  it,  often  gives 
certain  security  which  is  known  as  "collateral"  and 
is  designed  to  insure  the  payee  against  the  maker's 
inability  to  pay  on  maturity.  Thus,  A  borrows 
$1,000  from  B  and  gives  B  his  promissory  note  for 
that  amount.  A  also  gives  B  (or  puts  in  the  hands 
of  a  third  party)  securities  which  shall  be  used  to 
reimburse  B  if  he,  A,  fails  to  pay  the  note  when 
due.  Suppose  A  fails  to  pay  and  the  securities 
sell  for  $1,500.  Then  B  will  have  to  return  to  A 
$500  less  interest  on  the  note  (if  there  is  any). 
Thus  giving  collateral  makes  security  more  specific. 


98 


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BANKING    FOR    BEGINNERS  99 

COLLATERAL  NOTE  FORM.— The  ordinary 
collateral  note  is,  in  form,  the  usual  promissory 
note,  with  the  rate  of  interest  given,  together  with 
substantially  the  following  language: 

The  undersigned  has  deposited  with  said  bank  as  col- 
lateral security  for  the  payment  of  this  and  any  and  every 
liability  or  liabilities  of  the  undersigned  to  the  said  bank 
direct  or  contingent,  due  or  to  become  due.  or  which  may 
hereafter  be  contracted  or  existing,  the  following  prop- 
erty (here  the  specific  collateral  is  described),  together 
with  all  other  securities  in  the  possession  of  said  bank  be- 
longing to  the  undersigned  or  in  which  the  undersigned  has 
an  interest;  hereby  agreeing  to  deliver  to  said  bank  addi- 
tional securities  to  its  satisfaction,  upon  demand  of  said 
bank,  also  hereby  giving  to  said  bank  a  lien  for  the  amount 
of  all  said  liabilities  of  the  undersigned  to  said  bank  upon 
all  property  or  securities  which  now  are  or  may  hereafter 
be  pledged  as  collateral  with  said  bank  by  the  undersigned, 
or  in  the  possession  of  said  bank  in  which  the  undersigned 
has  any  interest,  and,  also  upon  any  balance  of  the  de- 
posit account  of  the  undersigned  with  said  bank.  On  the 
non-performance  of  this  promise,  or  upon  the  non-payment 
of  any  liabilities  above  mentioned,  or  upon  the  failure  of 
the  undersigned  forthwith  to  furnish  satisfactory  addi- 
tional securities  on  demand,  at  the  option  of  said  bank,  this 
obligation  shall  become  immediately  due  and  payable,  and 
then  and  in  every  such  case  full  power  and  authority  are 
hereby  given  to  said  bank  to  sell,  assign  and  deliver  the 
whole  of  said  securities  or  any  part  thereof  or  any  substi- 
tutes therefor  or  any  additions  thereto  through  any  stock 
exchange  or  broker  or  at  private  sale,  without  either  adver- 
tisement or  notice,  the  same  being  hereby  expressly  waived 
or  said  bank,  at  its  option,  may  sell  the  whole  or  any  part  of 
said  securities  or  property  at  public  sale  upon  five  days' 


100         BANKING    FOR    BEGINNERS 

notice  published  in  any  nev/spaper  printed  in  the  city  of 
,  at  which  public  sale  said  bank  itself  may  pur- 
chase the  same  or  any  part  thereof  free  from  any  right  of 
redemption  on  the  part  of  the  undersigned,  which  is  hereby 
expressly  waived  and  released.  In  case  of  sale  for  any 
cause,  after  deducting  all  costs  and  expenses  of  every  kind, 
said  bank  may  apply  the  residue  of  the  proceeds  of  such 
sale,  as  it  shall  deem  proper,  toward  the  payment  of  any  one 
or  more  or  all  of  the  liabilities  of  the  undersigned  to  said 
bank,  whether  due  or  not  due,  returning  the  overplus,  if 
any,  to  the  undersigned,  who  agree  to  be  and  remain  liable 
to  said  bank  for  any  and  every  deficiency  after  application 
as  aforesaid,  upon  this  and  all  other  of  said  liabilities;  the 
undersigned  hereby  authorizing  the  transfer  or  assignment 
of  said  securities  and  property  to  the  purchaser  thereof. 

And  I  hereby  authorize  any  attomey-at-law  to  appear 
in  any  court  of  record  in  the  United  States,  after  the  above 
obligation  becomes  due  and  waive  the  issuing  and  service 
of  process  and  confess  a  judgment  against  me  in  favor  of 

THE  FIRST  NATIONAL  BANK  OF 

or  any  holder  of  this  note,  for  the  amount  then  appearing 
due  together  with  the  costs  of  suit,  and  thereupon  to  release 
all  errors  and  waive  all  right  of  appeal  and  stay  of  execution. 

COLLATERAL  NOTE  WITH  WAIVER  OF 
RIGHTS. — The  form  of  this  note  is  the  same  as  a 
promissory  note,  with  substantially  the  following 
language  added: 

The  undersigned  having  deposited  as  collateral  secur- 
ity for  the  payment  of  this  and  any  other  liability  of  the 
undersigned  to  the  holder  hereof,  due  or  to  become  due  or 
that  may  be  hereafter  contracted,  the  following  property,  to 
wit:  (here  follows  a  description  of  the  collateral)  the  market 

value  of  which  is  now dollars,  with  authority  to  sell, 

transfer  or  re-hypothecate  said  collateral,  it  being  under- 


BANKING    FOR    BEGINNERS  101 

stood  that  on  payment  or  tender  of  the  amount  so  due,  the 
holder  hereof  may  return  to  the  undersigned  an  equal  quan- 
tity of  said  securities  instead  of  the  securities  deposited; 
with  the  further  right  to  the  holder  to  call  for  additional  se- 
curity in  case  there  should  be  a  decline  in  the  market  value 
of  the  securities  deposited  herewith,  and  upon  the  failure  of 
the  undersigned  to  comply  with  said  demand  and  to  deposit 
with  the  holder  hereof  additional  security  to  be  approved 
by  said  holder  sufficient  to  cover  said  decline,  this  note  shall 
become  instantly  due  and  payable  as  though  it  had  actually 
matured,  and  all  the  rights  hereby  conferred  to  dispose  of 
said  collateral  shall  at  once  be  exercisable  at  the  risk  of  the 
undersigned  in  case  of  any  deficiency  in  realizing  proceeds. 
Full  power  and  authority  are  hereby  given  the  holder 
hereof  to  sell,  assign  and  deliver  the  whole  of  the  above- 
mentioned  securities  or  any  part  thereof  or  any  substitutes 
therefor  or  any  additions  thereto  at  the  Broker's  Board  or  at 
public  or  private  sale,  at  the  option  of  said  holder  or  his 
assigns,  on  the  non-performance  of  this  promise  or  the  non- 
payment of  any  of  the  liabilities  above  mentioned  or  at  any 
time  or  times  thereafter,  without  demand,  advertisement  or 
notice,  and  after  deducting  all  legal  or  other  costs  and  ex- 
penses of  collection,  sale  and  delivery,  to  apply  the  residue 
of  the  proceeds  of  such  sale  or  sales  so  made  to  the  payment 
of  any  or  all  of  the  liabilities  above  mentioned,  as  said 
holder  or  his  assigns  shall  deem  proper,  returning  the  over- 
plus to  the  undersigned.  It  is  also  understood  that  upon 
any  sales  of  any  of  said  collateral  securities,  said  holder 
may  become  the  purchaser  thereof  absolutely  free  from  any 
claim  of  the  undersigned.  The  makers  and  endorsers  hereof 
hereby  waive  the  benefit  of  their  Homestead  exemption  as 
to  this  debt  and  do  further  waive  demand,  presentment, 
protest  and  notice  of  dishonor. 

The  collateral  deposited  must  be  salable  prop- 
erty, the  value  of  the  property,  rather  than  the 


102         BANKING    FOR    BEGINNERS 
COLLATERAL  AGREEMENT. 


No 


NATIONAL  BANK 

United  States  Depositary 

Boise,  Idaho 

Agreement  Upon  Deposit  of  Collateral 


The  undersigned  ha this  day  deposited  with 

the NATIONAL    BANK,   the 

following  securities: 


to  be  held  by  said  bank,  its  successors  or  assigns, 
as  collateral  for  any  and  all  checks,  drafts,  notes, 
endorsements  or  overdrafts  made,  or  discounts  ob- 
tained, or  other  indebtedness  incurred  by  the  under- 
signed or legal  representatives  or  assigns, 

due,  or  to  become  due,  to  said  Bank.  Said  Bank  is 
authorized  to  sell  or  dispose  of  the  same  at  public 
or  private  sale  without  notice,  should  any  part  of 
said  indebtedness  not  be  paid  when  due,  and,  if  at 
public  sale,  to  become  the  purchaser  thereof. 

Witness:  


BANKING    FOR    BEGINNERS         103 
RECEIPT  FOR  COLLATERAL 

No 

NATIONAL  BANK 

United  States  Depositary 

Boise,  Idaho 

Receipt  for  Collateral 


THE NATIONAL  BANK 

has  this  day  received  of 

the  following  securities: 


to  be  held  by  said  bank,  its  successors  or  assigns,  as 
collateral  for  any  and  all  checks,  drafts,  notes,  en- 
dorsements or  overdrafts  made,  or  discounts  ob- 
tained, or  other  indebtedness  incurred  by  the  said 

or   

legal  representatives  or  assigns,  due,  or  to  become 
due,  to  said  Bank.  Said  Bank  is  authorized  to  sell 
or  dispose  of  the  same  at  public  or  private  sale 
without  notice,  should  any  part  of  said  indebtedness 
not  be  paid  when  due,  and,  if  at  public  sale,  to  be- 
come the  purchaser  thereof. 

NATIONAL  BANK, 
By Cashier, 


104         BANKING    FOR    BEGINNERS 
RECORD  OF  COLLATERAL 

No 
NATIONAL  BANK 

United  States  Depositary 

Boise,  Idaho 

Record  of  Collateral 


Security  for  indebtedness  of 

consisting  of  the  following  securities: 


Agreement  signed  by: 


Receipt  given: 
Remarks:  


Date  released :  

Receipt  taken  up:  

To  whom  and  how  delivered: 
Remarks:  


BANKING    FOR    BEGINNERS  105 

credit  of  the  borrower,  providing  the  security  for 
the  payment  of  the  money.  Such  loans  may  be 
made  payable  "on  time,"  or  "on  call."  In  the  latter 
form  they  are  payable  at  the  will  of  the  borrower 
and  callable  at  the  will  of  the  bank.  "Call  loans" 
are  made  at  low  rates  of  interest  since  they  pro- 
vide a  bank  with  a  very  liquid  (easily  converted 
into  money)  asset. 

CHATTEL  MORTGAGES.— A  chattel  mort- 
gage is  an  instrument  in  writing  which  states  that 
the  mortgagor  (the  person  borrowing  the  money) 
has  sold  to  the  mortgagee  (the  person  loaning  the 
money)  certain  specified  articles  of  personal  prop- 
erty. The  list  of  articles  is  described  in  full  either 
in  the  body  of  the  chattel  mortgage  itself  or  in 
an  accompanying  schedule.  There  is  always  a  con- 
dition clause  included,  which  usually  reads: 

Provided  Always,  and  these  presents  are  upon  this  ex- 
press condition,  that  if  said  party  of  the  first  part  shall  pay 
or  cause  to  be  paid  unto  the  said  party  of  the  second  part, 
or  to  its  assigns   (if  it  is  a  bank),  the  aforesaid  sum  of 

dollars,  according  to  the  terms 

of  his  certain  promissory  note  of  even  date  herewith,  and 

payable  at  the Bank,  with  interest 

thereon  at  the  rate  of per  cent,  per  annum  from  ma- 
turity and  which  note  the  said  party  of  the  first  part  hereby 
agrees  to  pay,  then  these  presents  and  everything  therein 
contained  shall  be  void,  anything  herein  contained  to  the 
contrary  notwithstanding.  And  it  is  hereby  mutually  cove- 
nanted and  agreed  between  the  parties  hereto  that  if  default 
be  made  in  payment  of  said  sum  of  money  or  any  part  there- 
of, or  the  interest  thereon  according  to  the  tenor  and  effect 


106         BANKING    FOR    BEGINNERS 

of  said  note  when  the  same  becomes  due  and  payable,  or 
upon  failure  to  conform  to  or  comply  with  any  of  the  con- 
ditions or  agreements  herein  mentioned,  then  the  whole  sum 
of  money  hereby  secured,  shall  at  the  option  of  the  legal 
holder  or  holders  hereof  become  due  and  payable  at  once 
without  notice.  And  it  is  further  agreed  that  in  case  of  sale 
or  disposal,  or  attempt  to  sell  or  dispose  of  the  goods  and 
chattels  here  mortgaged,  or  removal  of  or  attempt  to  re- 
move the  same  from  the  county  aforesaid,  or  an  unreason- 
able depreciation  in  value,  or  if  from  any  cause  the  security 
shall  become  inadequate,  or  the  party  of  the  second  part 
shall  deem  itself  insecure,  then  and  thenceforth  it  shall  be 
lawful  for  the  said  party  of  the  second  part,  or  its  assigns, 
or  its  authorized  agent,  to  enter  upon  the  premises  of  the 
said  party  of  the  first  part,  or  any  other  place  or  places 
wherein  said  goods  and  chattels  aforesaid  may  be,  to  re- 
move and  dispose  of  the  same  and  all  the  equity  of  redemp- 
tion of  the  said  party  of  the  first  part,  at  public  auction  or 
private  sale,  to  the  person  or  persons  who  shall  offer  the 
highest  price  for  same,  and  out  of  the  avails  thereof  to  retain 
the  full  amount  of  said  obligation  with  the  interest  thereon, 
according  to  the  conditions  thereof,  together  with  all  reason- 
able cost  and  expense  attending  the  same,  rendering  to  said 
party  of  the  first  part  or  his  legal  representatives,  the  sur- 
plus money  (if  any  there  shall  be),  anything  herein  to  the 
contrary  notwithstanding.  And  until  default  be  made  as 
aforesaid,  or  until  such  time  as  the  said  party  of  the  second 
part  shall  deem  itself  insecure  as  aforesaid,  the  said  party 
of  the  first  part  to  continue  in  the  peaceable  possession  of  all 
the  said  goods  and  chattels  all  of  which  in  consideration 
thereof,  he  engages,  shall  be  kept  in  as  good  condition  as 
the  same  now  is,  and  taken  care  of  at  his  expense,  and  if 
from  any  cause  said  property  shall  fail  to  satisfy  said  debt 
and  interest  aforesaid,  said  party  of  the  first  part  hereby 
agrees  to  pay  the  deficiency. 


BANKING    FOR    BEGINNERS  107 

A  short  affidavit  of  ownership  is  sometimes  in- 
cluded, which  states  that  the  mortgagor  is  the 
lawful  owner  of  the  personal  property  described, 
and  that  there  are  no  liens  upon  said  property.  The 
chattel  mortgage  is  dated,  signed  by  the  mortgagor, 
his  signature  being  witnessed  (some  jurisdictions 
require  one  witness,  others  require  two),  and  he 
acknowledges  his  signature  before  a  notary  public 
or  other  officer  authorized  and  empowered  to  take 
acknowledgments.  The  chattel  mortgage  should 
be  recorded  in  the  office  where  deeds  are  recorded. 

CHATTEL  MORTGAGES  ON  CATTLE.— A 
chattel  mortgage  on  cattle  states  that  the  mort- 
gagor, for  the  purpose  of  securing  payment  of  his 

certain  promissory  note  payable  to  the 

Bank,    (giving    date,    amount    and    due    date    of 

note),  with  interest  from  maturity  at per  cent. 

per  annum  until  paid,  sells  and  conveys  to  the  bank 
certain  described  personal  property  owned  by  him. 
The  cattle  pledged  is  described  by  number,  age, 
color,  weight,  name,  marks  or  brands,  from  whom 
obtained  and  value.  These  mortgages  usually  in- 
clude the  crops  planted  on  the  land  owned  by  the 
mortgagor.      The    following    condition    clause    is 

included: 

PROVIDED,  HOWEVER,  If  I  shall  pay  such  debt 
and  interest,  then  this  mortgage  shall  be  void;  but,  if  de- 
fault be  made  in  the  payment  of  said  debt,  according  to  the 
conditions  of  said  note,  or  if  during  the  lien  of  this  mort- 
gage I  attempt  to  sell,  remove  or  otherwise  dispose  of  said 
mortgaged  property,  or  any  part  thereof,  or  if  I  shall  abuse 


108 


BANKING    FOR    BEGINNERS 


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BANKING    FOR    BEGINNERS  109 

or  misuse  said  mortgaged  property,  or  any  part  thereof,  or 
shall  fail  to  take  reasonable  or  proper  care  thereof,  whereby 
the  same  or  any  part  thereof  shall  become  depreciated  in 
condition  or  value,  or  if  said  property  or  any  part  thereof 
shall  be  seized  under  a  writ  of  attachment  by  virtue  of  an 
execution  against  me ;  or  if  at  any  time  the  said  mortgagee 
shall,  with  reasonable  cause,  deem  itself  insecure,  then  and 
thereupon  the  said  mortgagee  or  its  agent,  is  hereby  author- 
ized to  declare  the  whole  debt  due,  and  to  enter  upon  the 
premises  whereon  said  property,  or  any  part  thereof,  may  be. 
and  take,  remove  and  sell  the  same  in  the  manner  provided 
by  law,  and  out  of  the  proceeds  the  said  mortgagee  is  herein 
and  hereby  authorized  and  empowered  to  retain  such 
amount  as  shall  be  sufficient  to  satisfy  the  said  entire  in- 
debtedness hereby  secured,  with  interest  thereon  to  the 
time  of  such  sale.  $10.00  attorney's  fees,  and  such  expenses 
as  shall  have  been  necessarily  incurred  in  the  seizure,  keep- 
ing and  sale  of  such  property,  returning  to  me  or  my  rep- 
resentative any  surplus  derived  from  the  said  sale  of  the 
said  property  after  having  satisfied  the  several  amounts 
aforesaid ;  and  it  is  agreed  that  the  said  mortgagee  retains  in 
force  all  mortgages  heretofore  given  securing  the  same  or 
any  part  of  the  indebtedness  hereby  secured. 

These  mortgages  should  be  signed  and  executed 
in  the  manner  described  in  the  preceding  paragraph. 

HANDLING  COLLATERAL  LOANS.— The 
rate  on  call  loans  in  New  York  City  ranges  or- 
dinarily from  1%  upward,  depending  upon  the 
amount  of  money  held  by  the  banks  and  their  will- 
ingness to  accept  offered  collateral.  "Collateral 
loans"  differ  from  "discounts"  in  that  the  full 
amount  of  the  note  is  generally  advanced,  interest 
being  paid  at  maturity  or  on  call;    and  little  de- 


110         BANKING    FOR    BEGINNERS 

pendence  is  placed  on  personal  credit  ratings.  They 
are  quite  alike  in  the  methods  followed  for  making, 
recording  and  collecting  the  loan,  as  explained 
elsewhere.  It  is  the  duty  of  the  holder  of  collateral 
to  protect  it.  A  bank  must  exercise  ordinary  care 
and  diligence  in  keeping  bonds  deposited  as  col- 
lateral. Reasonable  diligence  is  required  when 
notes  are  held,  to  protect  them  from  becoming  out- 
lawed. After  the  loan  is  approved,  the  securities 
are  verified  and  listed,  and  the  details  of  the  loan 
are  entered  upon  the  register  and  also  upon  the 
collateral  ledger  (according  to  owners).  After  the 
borrower  receives  the  proceeds  of  the  loan,  the  col- 
lateral is  filed  away  in  envelopes  arranged  alpha- 
betically according  to  owners.  This  permits  ready 
comparison  with  the  collateral  ledger,  which  is  of 
the  loose-leaf  variety.  The  person  that  is  respon- 
sible for  watching  the  collateral  loans  in  order  to 
avoid  depreciation  in  the  collateral  deposited,  must 
keep  informed  upon  values  of  collateral  and  also 
have  the  bank's  holdings  of  each  kind  of  collateral 
recorded  in  a  form  convenient  for  ready  reference 
and  location  of  owners,  in  order  that  they  may 
be  notified  to  strengthen  their  accounts  by  a  part 
payment  or  by  an  addition  to  the  collateral  de- 
posited. Substitutions  of  collateral  are  always  per- 
mitted if  the  newer  securities  are  acceptable.  Part 
payments  and  partial  release  of  securities  are  very 
common. 

LOSS   OF  NOTES.— If  a  note  is  lost  or  stolen 


BANKING    FOR    BEGINNERS         111 

the  maker  must  still  pay  when  it  becomes  due.  A 
person  buying  a  lost  or  stolen  note  has  a  right  to 
collect  on  it  if  he  is  an  "innocent  purchaser."  The 
purchaser  must  not  be  aware  that  the  note  had 
been  lost  or  stolen  and  really  belonged  to  someone 
else.  If  A  gives  his  note  to  B  and  the  note  is  lost 
by  B  or  stolen  from  B,  then  A  must  pay  B  if  the 
latter  gives  him  what  is  known  as  a  "bond  of  in- 
demnity"— an  instrument  which  states  that  if  the 
paper  turns  up  later  and  A  is  required  to  pay  on 
it,  then  B  will  return  the  money  he  has  received. 

ACCOMMODATION  NOTES.  — An  accom- 
modation note  is  one  which  is  signed  as  maker  or 
endorser  by  some  party  who  has  received  nothing 
for  signing  his  name  to  it.  He  lends  his  name  to 
the  maker  to  enable  the  latter  to  get  his  considera- 
tion (since  bills  and  notes  are  contracts  they  are 
governed  by  the  same  rules  of  contracts  elsewhere 
discussed)  from  the  payee.  It  is  a  benefit  to  the 
payee  because  he  can  more  easily  transfer  it  to 
some  other  party  by  endorsement  and  secure  money 
on  it.  Since  the  accommodation  maker  has  received 
nothing  for  his  signature  the  payee  can  not  make 
him  pay  as  a  "maker,"  even  though  his  name  is  on 
the  note  as  such.  But  if  a  holder  for  value  (one 
who  has  in  good  faith  paid  something  valuable  for 
the  note)  gets  the  note  he  can  make  the  accommo- 
dation party  pay  him,  even  if  when  he  took  the 
instrument  he  knew  him  to  be  only  an  accommoda- 
tion party.    A  wishes  to  borrow  $1,000  at  the  bank. 


112 


BANKING    FOR    BEGINNERS 


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BANKING    FOR    BEGINNERS  113 

He  asks  B  to  lend  him  his  credit.  So  A  makes  a 
promissory  note  payable  to  B,  who  endorses  it 
in  blank.  A  then  takes  the  note  and  discounts  it 
at  the  bank.  Or  suppose  A  had  been  the  ordinary 
payee  but  the  bank  would  not  take  the  note  on  A's 
and  B's  credit.  Then  A  may  get  C  to  endorse  it 
in  blank  and  then  A  will  take  it  to  the  bank  and 
discount  it.  C  is  the  accommodation  endorser  for 
A,  the  payee.  If  C's  signature  appears  before  that 
of  A  he  is  termed  an  "irregular  endorser."  Hav- 
ing signed  for  the  accommodation  of  the  payee,  he 
is  liable  to  all  parties  after  the  payee.  For  illustra- 
tion: A  made  a  note  to  his  own  order  and  en- 
dorsed it  for  the  accommodation  of  B,  who  then 
endorsed  it  and  negotiated  it  to  P.  At  maturity 
the  note  was  not  paid  and  A  is  sued  for  the  amount. 
He  will  be  liable,  and  will  not  be  permitted  to  show 
the  existence  of  an  oral  agreement  with  B  that  B 
alone  was  to  be  liable  on  the  note.  In  short,  accom- 
modation parties  are  liable  to  holders  for  value  of 
the  notes  they  sign,  but  are  not  liable  to  the  party 
for  whose  accommodation  they  sign. 

BANK  DISCOUNT.  —  Suppose  A  wishes  to 
borrow  $1,000  from  his  bank.  He  gives  his  prom- 
issory note  for  the  amount,  due  in  sixty  days.  In- 
stead of  collecting  interest  when  the  note  becomes 
due  the  bank  will  deduct  the  interest  in  advance. 
Suppose  the  interest  to  be  6%;  the  bank  will  pay 
him  $990.  In  this  way  the  bank  is  really  getting 
more  than  it  would  by  taking  the  6%  when  the 


114 


BANKING    FOR    BEGINNERS 


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BANKING    FOR    BEGINNERS  115 

note  becomes  due,  for  then  it  would  be  getting 
6%  on  $1,000;  since  A  must  pay  $1,000,  the  bank 
is  really  getting  interest  for  sixty  days  on  $990 — 
or  6.165%.  Similarly,  A  might  discount  a  note 
of  C's  which  he  had  in  his  possession.  Bank  dis- 
count (the  sum  the  bank  gets)  is  not  usury,  even 
if  the  bank  gets  slightly  more  than  the  legal  rate 
of  interest.  A  "discount"  is  really  a  loan  in  which 
the  interest  is  paid  in  advance  instead  of  at  ma- 
turity. The  "discount"  is  also  the  amount  deducted 
from  the  face  of  the  note.  "Discounting"  is  the 
process  of  securing  money  on  commercial  paper 
(bills  as  well  as  notes)  by  paying  interest  in 
advance. 

DISCOUNT  RECORDS.— The  discount  clerk 
records  the  note  or  notes  in  a  "Discount  Register" 
by  consecutive  numbers  under  the  date  when  dis- 
counted, with  all  details  as  to  endorsements,  in- 
terest, amount  and  maturity.  He  then  enters  the 
notes  in  a  "Tickler"  or  "Maturity  Calendar"  under 
their  due  dates,  with  a  complete  description.  This 
is  designed  to  avoid  errors  in  presentation,  since 
proper  presentation  on  the  due  date  is  necessary 
in  order  to  hold  endorsers  liable.  The  notes  are 
then  filed  away  in  wallets,  either  according  to  num- 
ber or  according  to  due  dates;  usually  the  latter. 
That  system  is  best  which  provides  quickest  access 
to  any  note  that  is  wanted.  The  transcript  of  the 
day's  discount  record  is  sent  to  the  credit  depart- 
ment for  its  information.     The  total  of  bills  dis- 


116         BANKING    FOR    BEGINNERS 

counted,  together  with  a  record  of  any  other  trans- 
actions conducted  by  the  discount  teller,  is  sent 
to  the  general  bookkeeper.  Due  notes  are  paid 
through  a  note  teller,  or  the  collection  department, 
or  the  discount  department,  according  to  the  plan 
of  the  bank's  organization.  To  use  a  separate  note 
teller  is  especially  to  be  desired  when  there  is  a 
large  volume  of  general  collection  business,  and, 
incidentally,  it  separates  the  handling  of  cash  from 
the  keeping  of  discount  records.  Some  of  the  fac- 
tors that  determine  whether  the  bank  will  grant 
a  discount  are  (1)  the  condition  of  the  bank's  funds; 

(2)  the  claim  of  the  applicant  to  accommodation; 

(3)  the  credit  of  the  applicant;  (4)  the  rate  of  dis- 
count on  the  loan. 


CHAPTER  V 


Deposits  and  Checks 

WHAT  IS  A  DEPOSIT?— A  "deposit"  is  the 
right  to  receive  money  from  a  bank.  Or  it  is  the 
obligation  of  a  bank  to  pay  money. 

DEPOSIT  BOOKS  AND  DUPLICATE 
SLIPS. — When  a  customer  opens  an  account  with 
a  bank  he  is  given  a  deposit  book,  known  also  as 
a  "pass  book"  or  "bank  book."  This  book  contains 
the  bank's  account  with  the  customer.  Every  time 
he  makes  a  deposit  (by  putting  in  cash  or  discount- 
ing or  in  any  other  way)  the  total  is  entered  on 
the  debit  side  of  the  pass  book,  since  they  are  debits 
of  the  bank.  (The  debit  side  is  usually  made  the 
left  hand  page  in  the  pass  book).  The  pass  book 
is  the  depositor's  evidence  of  deposit. 

DEPOSIT  TICKETS.— Deposit  tickets  are  the 
slips  depositors  are  required  to  make  out  showing 
the  respective  amounts  of  cash,  notes,  checks,  etc., 
that  are  deposited.  They  should  always  be  made 
out  by  the  depositor,  and  never,  except  in  unusual 
cases,  such  as  inability,  by  bank  officials.  They  are 
kept  by  the  banks  and,  if  any  dispute  arises  as  to 
how  much  was  deposited,  these  slips,  in  the  hand- 
writing of  the  depositor,  are  of  great  value.  Banks 
frequently  print  in  the  pass  books  notice  of  the 
terms  on  which  deposits  are  received  and  the  same 
terms  should  also  be  placed  on  the  deposit  slips. 

117 


118 


BANKING    FOR    BEGINNERS 


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BANKING    FOR    BEGINNERS 


119 


This  statement  usually  is  merely  a  disclaimer  of 
liability  on  items  deposited  that  are  payable  by 
other  banks.  This  is  done  to  notify  the  depositor 
that  while  the  bank  has  acknowledged  its  indebted- 
ness to  him,  that  this  is  subject  to  the  qualification 
that  all  checks,  notes  and  drafts  presented  are  sub- 


DEPOSIT  TICKET  WITH  DISCLAIMER  FOR 
COLLECTIONS. 


FOR    DEPOSIT    BY 


— WITH— 

National  Bank, 

Richmond,  Va., 


19 


The  depositor  using  this  ticket  hereby  agrees  that  all  items  payable 
outside  of  Richmond  shall  be  forwarded  by  this  bank  as  agent  for  the 
depositor  at  the  depositor's  risk ;  that  this  bank  shall  not  be  responsible 
for  negligence,  default  or  failure  of  sub-agents,  nor  for  losses  in  the 
mails;  that  this  bank  shall  have  the  right  to  charge  back  to  the  de- 
positor's account  any  item  for  which  actual  payment  is  not  received; 
that  items  may  be  sent  direct  to  the  banks  on  which  drawn  without 
waiving  any  of  the  above  conditions,  and  that  items  on  Richmond  are 
credited  subject  to  actual  payment  through  the  Richmond  Clearing 
House. 


Currency 

Coin 

Check  and  Drafts. 


Dollars 


Cents 


120 


BANKING    FOR   BEGINNERS 


ject  to  the  bank's  ability  to  collect  on  them.  For 
instance,  A  deposits  B's  check  for  $500  with  the 
bank.  The  bank  enters  A  as  having  made  a  $500 
deposit.  But  if  the  bank  is  unable  to  collect  the 
check  it  will  not  be  liable  to  A  for  the  $500  with 
which  it  has  credited  him.    In  order  that  the  bank's 


DEPOSIT  TICKET,  SIMPLE  FORM. 


NATIONAL  BANK 

OF  PITTSBURGH. 
DEPOSIT  MADE  BY 

19 

CURRENCY 

Dollars 

Cents 

SILVER 

GOLD 

CHECKS   AS   FOLLOWS 

In  Pittsburgh,  name  the  Bank; 
out  of  town,  name  the  place 

BANKING    FOR    BEGINNERS         121 
SIGNATURE  CARD  FOR  INDIVIDUALS. 


AUTHORIZED   SIGNATURE  OF  INDIVIDUAL 

For  the  FIRST  NATIONAL  BANK  OF  STATETOWN 

Sign  Here 


Address 

Business 

Introduced  by  Accepted  by 

Date  191  Remarks 

face 


O 

To  the  FIRST  NATIONAL  BANK  OF  STATETOWN: 

Until  you  are  further  notified  by  the  undersigned,  in 
writing,  you  are  hereby  authorized,  empowered  and  di- 
rected to  honor  and  pay  all  checks  drawn   on  you  and 

signed  by whose   signature 

appears  below  (who  is  fully  authorized  to  represent  and 
act  for  the  imdersigned  in  all  dealings  with  your  Bank) 
and  charge  such  checks  to  the  account  of  the  undersigned. 


Signature  of  person 

authorized  to  sign  checks: 

I  hereby  certify  the  foregoing  is  the  signature  of 


Dated,  this day  of A.  D.  191, 

back 


122         BANKING    FOR    BEGINNERS 

SIGNATURE  CARD  FOR  PARTNERSHIPS. 


AUTHORIZED    SIGNATURES    OF  PARTNERSHIP 

For  the  FIRST  NATIONAL  BANK  OF  STATETOWN 


U3 


O 

O 


Mr. 

will  sign 

Mr. 

will  sign 

Mr. 

will  sign 

Mr. 

will  sign 

Date. 


.191  O 


face 


O 


Name 
Address 


Business 
Introduction 


Came  from 

Other  Bank  Accounts 

Remarks 


Account  accepted  by 
back 


BANKING    FOR    BEGINNERS         123 
SIGNATURE  CARD  FOR  CORPORATIONS. 


AUTHORIZED    SIGNATURES    OF  CORPORATION 

For  the  FIRST  NATIONAL  BANK  OF  STATETOWN 


3 
O 

O 


Date. 


,1910 


President 
Vice-President 


Vice-President 

Secretary 

Treasurer 


face 


Name 
Address 
Business 
Introduction 


Came  from 

Other  Bank  Accoimts 

Remarks 


Account  accepted  by 
back 


124         BANKING    FOR    BEGINNERS 

SPECIMEN  DUPLICATE  DEPOSIT  TICKETS. 


DEPOSITED  BY 


The 


National  Bank  of  New  York. 


Temporary  receipt  for  deposit,  issued  pending  entry  in 
Pass  Book. 

Depositors  will  please  compare  above  amounts  with 
entries  in  Pass  Book  when  balanced. 


u 

H 
O 

o 

CT.RVRLAND.   OHIO 

19 

U] 

HAS    DEPOSITED    S 

TO 

■< 

THE   CREDIT   OF 

A. 

o 

TELLER. 

BANKING    FOR    BEGINNERS  125 

SIGNATURE   CARD    FOR    ONE   BANK   MAKING   A 
DEPOSIT  IN  ANOTHER. 


AUTHORIZED 

SIGNATURE   OF 

For  the 

FIRST  NATIONAL  BANK  OF  STATETOWN 

Below    find    the    authorized 

(NUMBER) 
please   recognize  in  the   payment  of  funds 
business  on  account  of  this   Bank.      Yours 

Date 

signatures    which 

or   the  transaction 
respectfully. 

you    will 
of  other 

Cashier 

President 

Vice-President 

Cashier 

Assistant 

Cashier 

Date 

191 

o 

face 

o 

Capital 

Surplus 

Undivided 

Profits 

back 

126 


BANKING    FOR    BEGINNERS 


position  may  be  clear,  such  legal  notice  to  deposi- 
tors should  be  given  of  the  terms  on  which  deposits 
are  received. 

STATEMENT  OF  ACCOUNT. 


IN  ACCOUNT  WITH  STATE  BANK,  MONTANA 

Please  examine  and  report  on  this  account  as  soon  as  convenient 
DEBITS  CREDITS 


Vouchers 


CHECKS  PAID 


ned  as  per  above  list 


Balance 
DEPOSITS 


Total  Credits 
Total  Debits 
Balance. 


Failure  to  report  errors  prior  to  the  20th  of  the  month  next  after  the  receipt  of 
this  statement  will  be  considered  evidence  of  the  correctness  of  your  account. 


BANKING    FOR    BEGINNERS  127 

DUPLICATE  DEPOSIT  TICKETS.— Some- 
times, especially  when  the  amounts  are  small  and 
the  deposit  is  expected  to  be  comparatively  short- 
lived, instead  of  giving  the  depositor  a  pass  book 
the  bank  may  give  him  a  duplicate  slip  for  each 
deposit  ticket  he  makes  out — that  is,  each  deposit 
will  be  entered  on  a  slip  which  is  handed  to  the 
depositor  and  serves,  instead  of  the  pass  book,  as 
the  depositor's  evidence  of  the  deposit.  Likewise, 
the  duplicate  deposit  ticket  is  of  great  convenience 
when  the  depositor  forgets  to  bring  his  pass  book. 
Banks  that  do  not  have  a  special  printed  dupli- 
cate slip  may  use  a  rubber  stamp  on  the  regular 
slips  to  acknowledge  deposits. 

STATEMENTS  OF  ACCOUNT.  —  This  is  a 
duplicate  of  the  ledger  account  prepared  daily  and 
completed  on  the  last  day  of  the  month.  The  de- 
positor is  expected  to  call  for  this  on  or  after  the 
first  of  the  month.  If  he  does  not  do  so  it  may  be 
mailed  to  him.  It  lists  the  amounts  deposited  and 
the  checks  drawn  by  the  depositor  which  the  bank 
has  paid  during  the  month,  and  then  shows  how 
much  of  a  balance  the  depositor  has — that  is,  for 
how  much  he  may  still  draw  on  the  bank.  Bankers 
usually  require  the  depositor  to  acknowledge,  by 
his  signature,  that  he  has  received  the  statement, 
and  there  is  also  usually  a  stipulation  that  if  it  is 
not  objected  to  within  a  certain  number  of  days 
the  account  will  be  considered  correct.  Some  banks 
do  not  use  the  monthly  statement  of  account.    With 


128 


BANKING    FOR    BEGINNERS 


such  banks  the  customer  must  present  his  pass 
book  to  be  "written  up,"  showing  checks  paid  and 
balance  forwarded.  It  is  often  necessary  under  this 
system  to  notify  and  urge  customers  to  bring  in 
their  books. 


FORM  OF  RECEIPT  FOR  STATEMENT  OF 
ACCOUNT. 


Received  of  THE  FIRST  NATIONAL  BANK 
OF  STATETOWN,  Statement  of  my  account  to 

191  with Vouchers  showing 

Credit  Balance  of  $ I  hereby  agree 

to  examine  same  carefully,  and  if  not  correct  give 
notice  to  an  officer  of  said  bank  and  make  all  recla- 
mations within  ten  days. 


Statetown  191 

Please  sign  this  voucher  receipt  and  return  same  to  us. 


RECEIVING  TELLER  AND  DEPOSI- 
TORS. —  In  small  banks  where  the  amount  of 
business  done  does  not  justify  a  separate  note 
teller  and  collection  clerk,  the  receiving  teller  re- 
ceives and  accounts  for  all  the  funds  that  come  into 
the  bank.  In  large  city  banks  the  receiving  teller's 
main  duty  is  to  receive  the  deposits  that  come  in 
directly  over  the  counter.    His  work  divides  itself 


BANKING    FOR    BEGINNERS         129 

into  two  chief  functions:  (1)  He  must  prove  the 
deposit  tickets  and  receipts  for  items  so  received; 
(2)  he  must  sort  the  checks  and  currency  into 
groups  before  turning  them  over  to  the  other  de- 
partments of  the  bank.  The  receiving  teller  must 
be  able  rapidly  to  compare  the  amounts  entered 
on  the  deposit  slip  with  what  is  handed  to  him.  He 
should  also  be  sure  that  the  pass  book  presented 
belongs  to  the  person  whose  name  is  on  the  deposit 
slip — if  the  right  name  is  not  on  the  ticket  trouble 
and  confusion  may  result,  for  then  the  ledger  ac- 
count and  the  pass  book  would  not  tally.  The 
ledger  account  would  show  a  certain  sum  deposited 
by  A,  while  the  pass  book  of  B  would  contain  an 
entry  of  that  sum.  When  checks  of  corporations 
are  presented  the  receiving  teller  should  see  that  all 
checks  are  endorsed  by  the  corporations,  and  not 
by  the  officers  as  such.  Thus,  "The  A.  B.  Company, 
by  Robert  Jones,  Treas.,"  is  a  proper  endorsement, 
while  "Robert  Jones,  Treas.,"  would  not  be.  Sup- 
pose A,  the  treasurer  of  a  corporation,  presents  a 
check  payable  to  himself  and  signed  by  himself 
as  treasurer,  which  he  wishes  to  have  credited  to 
his  personal  account.  A  check  so  drawn  puts  a 
bank  upon  its  inquiry.  It  has  been  held  in  some 
jurisdictions  that  a  bank  is  liable  for  accepting  a 
check  of  this  kind,  for  the  reason  that  the  check 
appears  irregular  on  its  face.  Unless  the  signature 
of  an  additional  officer  appears  on  such  a  check, 
the  bank  should  satisfy  itself  that  the  check  is  an 


130         BANKING    FOR    BEGINNERS 

authorized  disbursement  of  the  corporation  before 
crediting  it.  Finally,  deposit  tickets  are  filed  on 
spindles  and  sent  to  the  bookkeeper's  desk  to  be 
entered  in  the  proper  ledger  accounts. 

NOTE  TELLER.— The  note  teller  also  receives 
and  accounts  for  certain  funds  for  the  bank.  The 
proceeds  of  city  collections  usually  come  into  the 
hands  of  the  note  teller.  (City  collections  are 
checks  and  sight  drafts  drawn  on  business  firms 
and  on  banks  not  members  of  the  clearing  house. 
They  are  collected  by  messengers  of  the  banks 
receiving  them).  He  may  also,  in  some  banks, 
receive  the  money  and  checks  that  come  through 
the  mail.  All  payments  made  on  notes  discounted 
or  purchased  by  the  bank,  or  deposited  for  collec- 
tion by  customers,  are  made  to  the  note  teller  unless 
the  bank  assigns  this  duty  to  the  discount  depart- 
ment. Many  of  the  larger  banks  have  adopted  the 
"unit  system"  of  combined  receiving  and  paying 
tellers,  subdividing  the  customers  alphabetically,  in 
order  to  provide  for  the  better  personal  acquaint- 
ance and  supervision  that  comes  with  such  concen- 
tration of  dealings. 

DIFFERENT  KINDS  OF  DEPOSITS.— De- 
posits are  either  "special"  or  "general."  A  "special" 
deposit  is  created  whenever  a  particular  thing  is 
delivered  to  a  bank  to  be  returned  upon  demand — 
money,  bonds  and  jewels  are  examples.  They  are 
given  to  the  bank  for  safe  keeping.  The  bank  may 
or  may  not  receive  any  compensation  for  taking 


BANKING    FOR    BEGINNERS         131 

care  of  the  valuables  deposited  with  them,  but 
whether  it  does  or  not  it  must  take  reasonable  care 
of  them,  and  will  be  liable  for  loss  resulting  from 
its  negligence.  "General"  deposits  are  ones  which 
are  to  be  repaid  on  demand  in  money,  and  the  title 
to  the  money  deposited  passes  to  the  bank.  A 
deposits  $1,000  cash  with  the  bank.  He  has  a  right 
to  get  $1,000  in  return,  but  not  the  same  coin  or 
currency.  In  the  case  of  general  deposits  the  rela- 
tion of  banker  and  depositor  is  that  of  debtor  and 
creditor.  General  deposits  must  be  made  with 
money  or  the  rights  to  money;  and  when  repaid 
they  may  be  paid  in  any  form  of  legal  tender  money. 
Such  general  deposits  may  be  repaid  in  part  or  in 
full  according  to  the  wishes  of  the  depositor. 
Deposits  may  be  either  "demand"  or  "time."  "De- 
mand" deposits,  as  the  term  indicates,  may  be 
withdrawn  in  whole  or  in  part  at  any  time.  "Time" 
deposits,  however,  may  not  be  withdrawn  within 
a  certain  specified  period.  Section  nineteen  of  the 
Federal  Reserve  Act  provides  that  "Demand  de- 
posits, within  the  meaning  of  this  Act,  shall 
comprise  all  deposits  payable  after  thirty  days." 
"Savings"  accounts,  according  to  the  Federal 
System,  include  those  in  respect  to  which  the  fol- 
lowing conditions  are  accepted  by  the  depositor 
at  the  time  the  account  is  opened:  (a)  The  pass 
book,  certificate,  or  other  form  of  receipt,  must  be 
presented  to  the  bank  whenever  a  deposit  or  with- 
drawal is  made ;   (b)  the  depositor  may  at  any  time 


132         BANKING    FOR    BEGINNERS 

be  required  by  the  bank  to  give  notice  of  an  intended 
withdrawal  not  less  than  thirty  days  before  a  with- 
drawal is  made.  Savings  banks  differ  in  many 
respects  from  commercial  banks  which  deal  in 
checking  accounts.  Very  often  the  same  bank  has 
both  commercial  and  savings  departments.  De- 
posits are  also  classified  as  "individual,"  "bank"  or 
"government."  "Individual"  deposits  are  rights  to 
draw  on  the  bank  for  funds,  by  an  individual,  firm 
or  corporation,  either  on  demand  or  upon  notice 
given  a  certain  number  of  days  in  advance.  "Bank" 
deposits  are  obligations  of  one  bank  to  another 
bank  or  other  banks,  and  are  often  entered  on  a 
bank's  books  as  "Due  other  banks,"  but  this  may 
be  divided,  in  a  more  detailed  statement,  into  "due 
National  banks,"  "due  State  banks,"  "due  trust 
companies  and  savings  banks."  "Government" 
deposits  are  merely  funds  owing  to  the  government. 
JOINT  AND  ALTERNATE  DEPOSITS.— 
Another  classification  of  deposits  is  into  "joint" 
and  "alternate."  Deposits  made  in  two  names  con- 
nected by  the  word  "and"  are  called  "joint  de- 
posits"; those  connected  by  the  word  "or"  are 
called  "alternate  deposits."  The  making  of  such 
a  deposit  may  be  construed  either  as  establishing 
(a)  a  gift,  (b)  a  trust,  or  (c)  joint  tenancy,  whereby 
the  whole  belongs  to  the  survivor.  The  intention 
of  the  depositor  determines  which  one  rules.  Such 
deposits  are  made  to  secure  (1)  convenience  in 
drawing  funds,  or  (2)  to  make  gifts  becoming  ef- 


BANKING    FOR    BEGINNERS         133 

fective  after  death  and  avoiding  administratorship. 
If  the  intention  is  that  the  account  shall  be  a  gift, 
it  is  not  valid  unless  the  pass  book  is  delivered  dur- 
ing the  life-time  of  the  donor.  In  some  States,  banks 
are  authorized  to  pay  such  accounts  to  either  of 
the  persons  "or  to  a  survivor  of  them,  or  to  a  per- 
sonal representative  of  such  survivor."  Bankers 
should  be  familiar  with  the  law  in  their  respective 
States. 

ACKNOWLEDGMENT   OF  JOINT   DEPOSIT. 


No 

To  NATIONAL  BANK. 

The  Deposits  now  or  hereafter  made  to  the  ac- 
count of  the  undersigned,  whether  made  by  them 
jointly  or  severally,  are  hereby  declared  to  be  their 
joint  property,  payable  to  either  of  them  during 
their  joint  lives  and  to  the  survivor  on  the  death  of 
the  other. 


Milwaukee,  Wis ,  191. 

In  Presence  of : 


134 


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BANKING    FOR    BEGINNERS  135 

TRUST  DEPOSITS.  —  Deposits  made  "in  the 
name  of  one  person,  as  trustee  for  another"  are 
known  as  "trust  deposits."  This  form  of  deposit 
is  sometimes  made  in  order  to  (1)  arrange  for  the 
disposition  of  an  estate  after  death  without  the 
use  of  a  will  or  administration,  (2)  conceal  from 
others  information  of  financial  status,  or  (3)  in- 
crease deposits  where  a  limit  is  set  upon  individual 
deposits.  The  mere  deposit  in  this  form  does  not 
create  a  trust,  but  in  most  States  such  a  deposit 
is  presumed  to  belong  to  the  "cestui  que  trust" 
(the  person  for  whom  the  account  is  in  trust) ;  but 
this  presumption  may  be  overcome  by  evidence 
showing  that  the  money  was  that  of  the  depositor, 
who  had  no  intention  of  giving  it  to  the  person 
named  as  the  cestui  que  trust.  However,  this  gen- 
eral rule  is  not  uniform  in  all  the  States. 

WHAT  IS  A  CHECK?— A  check  is  a  written 
order  on  a  bank  for  money  by  somebody  who  has 
a  deposit  there.  As  in  a  bill,  the  parties  to  a  check 
are  the  drawer,  the  drawee,  and  the  payee.  But, 
unlike  a  bill,  there  does  not  have  to  be  an  accept- 
ance. Checks  are  usually  made  payable  to  some- 
one's "order,"  and  must  then  be  endorsed  by  the 
payee  before  they  can  be  cashed  or  further  nego- 
tiated. 

CHECK  BOOKS  AND  VOUCHER  CHECKS. 
— The  check  book  is  simply  a  book  of  blank  checks 
given  to  the  depositor  which  he  may  use  to  draw 
on  his  deposit  when  he  pleases.    Most  check  books 


136 


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BANKING    FOR    BEGINNERS         137 

are  so  arranged  that  the  checks  may  be  torn  out 
and  a  stub  left  in  the  book,  which  serves  as  a  refer- 
ence to  the  depositor  and  has  spaces  in  which  he 
may  enter  the  name  of  the  person  to  whom  the 
check  was  given,  the  amount,  the  number,  the  pur- 
pose of  the  check,  the  amount  left  in  the  bank,  and 
amounts  deposited.  The  owner  of  the  check  book 
is  not  required  to  fill  these  out,  but  it  is  an  easy 
and  wise  thing  to  do.  It  is  particularly  important 
for  the  depositor  to  make  a  memorandum  of  the 
description  of  every  check  he  deposits,  in  order 
to  facilitate  tracing  and  identification  if  it  should 
be  necessary  later  to  do  so. 

COUNTER  CHECKS.  — In  order  to  prevent 
forgers  and  swindlers  from  receiving  the  regular 
checks  of  the  bank  the  "counter  check"  has  been 
devised.  These  may  safely  be  left  open  to  the  pub- 
lic because  they  are  cashable  only  at  the  bank's 
counter  and  by  the  drawer  in  person. 

VOUCHER  CHECKS.  —  Voucher  checks  are 
checks  that  include  a  statement  of  the  goods  or- 
dered or  expense  incurred  by  the  drawers.  Many 
companies  issue  such  voucher  checks  in  order  to 
secure  indisputable  proof  of  the  payment  of  the 
items  described  in  detail  by  the  voucher  part  of 
the  check.  They  will  be  slightly  different  in  form 
for  different  businesses,  but  they  should  always  be 
made  in  negotiable  form  and  in  the  form  of  a 
straight  draft  or  check,  with  the  endorsement  of 
the  payee  to  be  accepted  as  sufficient  receipt. 


138 


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BANKING    FOR    BEGINNERS  139 

PROPER  DRAWING  OF  CHECKS.— There 
are  certain  simple  rules  which,  if  observed  in  draw- 
ing checks,  will  greatly  lessen  the  danger  of  fraud, 
particularly  in  the  raising  of  checks.  The  writing 
in  the  body  of  the  check  should  exactly  agree  with 
the  figures  used  to  indicate  the  amount  for  which 
the  check  is  drawn.  The  paying  teller  must  be 
able  to  tell  that  the  signature  on  the  check  is  not 
a  forgery  and  that  the  amount  for  which  it  was 
drawn  has  not  been  raised.  Signatures  of  cus- 
tomers doing  an  active  and  regular  business  are 
easily  remembered.  Reference  to  signature  files 
is  generally  necessary  only  in  the  cases  of  infre- 
quent depositors  and  checks  of  corporations  where 
only  specified  officials  are  authorized  to  sign.  If 
the  paying  teller  pays  a  forged  check  then  the  bank 
is  liable.  If  he  pays  a  raised  check  the  bank  is  liable 
for  all  over  the  original  amount  the  check  was 
drawn  for.  It  is  sometimes  very  difficult  to  deter- 
mine whether  a  check  has  been  tampered  with. 
Sometimes  checks  are  so  very  carelessly  drawn  that 
it  is  a  simple  matter  to  change  them.  In  some  juris- 
dictions depositors  are  liable  where  they  draw 
checks  carelessly  and  make  fraud  easy,  but  such 
carelessness  or  fraud  must  be  clearly  proved,  as  the 
courts  are  generally  inclined  to  favor  depositors 
rather  than  banks.  The  use  of  safety  paper  (a  paper 
with  a  thin  coating  on  it  that  prevents  any  erasure 
without  becoming  noticeable)  is  becoming  more 
common.    Checks  written  in  pencil  are  not  prohib- 


140 


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BANKING    FOR    BEGINNERS         141 

ited,  but  there  is  much  danger  in  using  pencil,  as 
the  writing  may  be  easily  altered.  Bankers  should 
take  care  to  have  their  checks  printed  in  such  a  way 
that  the  possibility  of  fraud  will  be  lessened.  They 
should  also  inform  the  customer  as  to  the  best  way 
of  writing  checks.    Good  ink  and  plenty  of  it  should 

AN  INCORRECTLY  DRAWN  CHECK 


Minneapolis,  Minn.  Jan.  14,  1912  No,  21 

THE  DEPOSIT  BANK  17-81 

Pay  to  the 

order  of T.  L.  Wright $10 

Ten Dollars. 

JOHN  SMITH. 


CHECK  CORRECTLY  DRAWN. 


No.  3675  Statewood,  Indiana,  Dec.   17,   1917. 

THE  STATEWOOD  BANK  17-81 

Pay  to  Thomas  R.  Rice or  order 

Twenty-five   and   No./lOO Dollars 

$25.00  JOHN  T.   SMITH. 


142         BANKING    FOR    BEGINNERS 

be  used.  It  will  pay  the  bank  to  furnish  safety 
paper,  even  though  it  does  cost  a  little  more.  The 
figures  should  be  written  close  up  to  the  dollar 
sign  ($)  and  should  be  made  strong  and  prominent, 
and  the  "No/100"  should  be  made  in  such  a  way  that 
there  will  be  no  room  left  for  other  ciphers.  All 
spaces  should  be  filled  with  a  clear,  wavy  line. 
Care  should  be  taken  in  issuing  checks  to  strangers. 
Checks  for  small  sums  are  sometimes  obtained 
from  banks  for  the  purpose  of  raising  the  amount. 
Protective  devices,  a  number  of  which  are  now  sold, 
should  be  used  if  possible.  The  stub  should  be  filled 
out  first ;  otherwise  it  might  be  forgotten  and  the 
maker  or  drawer  of  the  check  would  have  no  record 
of  it.  The  stub  and  check  should  be  drawn  exactly 
alike.  Signatures  should  always  be  written  in  the 
same  way  and  the  same  style  of  letters  should  be 
used.  The  name  should  always  take  up  about  the 
same  space,  and  should  not  be  sprawly  one  time  and 
small  the  next.  The  same  form  should  be  used 
for  the  given  name  or  initials — not  John  Smith  one 
time,  John  R.  Smith  the  next,  and  then  J.  R.  Smith. 
RIGHTS  OF  CHECK  HOLDERS.  —  When 
the  depositor  has  funds  on  hand  to  meet  a  check 
the  bank  is  required  to  pay  it,  for  there  is  a  contract 
obligation  on  it  to  do  so,  and  it  is  liable  for  any 
damages  the  drawer  may  suffer  if  the  check  is  not 
paid.  The  death  of  the  depositor  revokes  all  his 
checks  that  are  unpaid  at  the  time  of  his  death.  A 
bank  which  pays  a  check  with  knowledge  of  the 


BANKING    FOR    BEGINNERS  143 

drawer's  death  is  liable  to  his  estate.  In  some 
States  a  similar  rule  applies  to  checks  drawn  by  a 
person  convicted  of  a  felony,  since  such  conviction 
suspends  all  civil  rights. 

PAYING  CHECKS.  — How  are  checks  paid? 
In  two  ways :  (a)  by  handing  cash  to  the  payee  or 
holder  (part  of  the  duties  of  the  paying  teller),  or 
(b)  by  receiving  it  on  deposit  for  the  credit  of 
another.  This  second  method  shows  how  impor- 
tant it  may  be  for  the  receiving  teller,  some  of 
whose  duties  we  have  already  described,  to  know 
what  checks  are  good  before  giving  credit  therefor 
to  another  party.  When  checks  are  presented  to 
the  paying  teller  he  must  (1)  determine  whether 
the  check  is  genuine,  (2)  that  it  has  not  been  raised, 
(3)  that  it  is  not  dated  ahead  of  the  day  on  which 
it  is  presented,  (4)  that  he  knows  the  person  pre- 
senting the  check  (or  he  must  be  identified  by  some- 
one known  to  the  bank),  (5)  that  payment  has  not 
been  stopped  on  the  check,  and  (6)  that  the  drawer 
has  a  sufficient  amount  on  deposit  to  pay  the  check. 
It  can  be  easily  seen  that  the  paying  teller  has  an 
important  position,  especially  when  it  is  remem- 
bered that  he  often  has  but  a  few  seconds  to  pass 
on  all  these  points. 

CHECKS  PAYABLE  TO  BEARER.— 
Checks  made  payable  to  "bearer,"  "cash"  or  "cur- 
rency" are  payable  to  the  bearer,  and  the  teller 
may  pay  them  without  identification  or  endorse- 
ment, although  it  is  a  good  rule  to  endeavor  to 


144         BANKING    FOR    BEGINNERS 

secure  endorsement  in  any  event.  They  may  be 
negotiated  by  delivery  and  no  endorsement  is  neces- 
sary. The  drawing  of  such  checks  should  be  dis- 
couraged, for  it  is  much  safer  to  make  checks  pay- 
able to  the  order  of  some  definite  person. 

POST-DATED  CHECKS.— These  are  checks 
dated  subsequent  to  the  day  on  which  they  are  is- 
sued. For  instance,  A  may  draw  a  check  today  but 
date  it  three  days  ahead.  This  is  "post-dating"  the 
check.  The  paying  teller  must  not  pay  checks  dated 
ahead,  for  by  tomorrow  the  maker  may  issue  a 
stop-order  and  cancel  the  check,  or  he  might  not 
have  enough  money  on  hand  to  enable  the  bank 
to  pay  it.  So  if  the  bank  does  pay  it,  it  does  so  at 
its  own  risk.  Sometimes  it  is  a  temptation  to  a 
man  to  date  his  check  ahead.  He  owes  a  bill  of 
$200.  He  does  not  have  that  much  in  the  bank, 
but  thinks  he  will  have  in  a  few  days.  So  he  dates 
the  check  ahead  four  or  five  days.  Suppose  the 
check  gets  to  the  bank  before  the  four  or  five  days 
are  up.  The  bank  refuses  to  cash  it.  The  man 
who  draws  it  is  "in  wrong"  with  his  banker  and 
loses  credit.  Where  a  check  (or  bill  or  note)  is 
not  dated,  it  will  be  considered  to  be  dated  as  of 
the  time  it  was  issued.  The  paying  teller  can  fill 
in  the  date  as  of  the  day  it  is  presented,  or  the 
person  presenting  the  check  may  do  this. 

OVERDRAFTS.  —  The  paying  teller  must  be 
sure  before  cashing  a  check  that  the  depositor  (who 
is  the  drawer)  has  sufficient  money  in  the  bank  to 


BANKING    FOR    BEGINNERS         145 

pay  it.  Otherwise,  theoretically  at  least,  the  bank 
should  not  pay  it.  Sometimes,  however,  banks  will, 
in  the  case  of  good  customers,  make  an  exception, 
and  allow  an  "overdraft,"  which  occurs  when  the 
bank  pays  a  check  drawn  for  a  larger  amount  than 
the  drawer  has  to  his  credit.  A  bank  is  not 
bound  to  pay  a  part  of  a  check  where  there  is 
not  enough  to  the  depositor's  credit  to  pay  it  in 

NOTICE  OF  OVERDRAFT  SENT  TO  DEPOSITOR 


The  First  National  Bank 

Idaho 19. 

Mr 


Dear  Sir; 

According  to  our  books  your  account  appears  over- 
drawn $ Please  advise  or  call  on  us 

at  once. 

If  an  immediate  notice  is  given  that  your  account 
is  overdrawn,  do  not  misconstrue  the  haste.  It  is  a 
wise  provision  to  detect  forgery,  raised  checks  or 
mistakes. 

Respectfully, 

,  Cashier. 


146         BANKING    FOR    BEGINNERS 

full.    Suppose  A  has  $1,000  in  the  bank,  and  draws 
two  checks  for  $600  each.    The  bank  is  bound  to 
pay  the  first  one  presented,  even  though  it  may 
have  been  drawn  later  than  the  other  one,  and  the 
bank  will  not  have  to  pay  the  latter  when  it  is 
presented,  since  the  account  would  then  be  over- 
drawn.    Nor  would  it  have  to  pay  $400  on  the 
second  one  presented.    Suppose  the  two  $600  checks 
A  has  drawn  are  presented  at  the  same  time.     If 
both  are  paid  the  account  will  be  overdrawn.     In 
cases    of    simultaneous    presentation,    the    bank's 
officers  can  legally  select  the  one  they  prefer  to 
pay.    Many  clearing  houses,  however,  have  a  rule 
that  both  checks  must  in  such  cases  be  paid  or 
both  refused. 

STOP  PAYMENT  ORDER. 


To  NATIONAL  BANK, 

East  Hampton,  N.  Y. 
Gentlemen : 

Please  stop  payment  on  check  No for 

$ dated  , 

payable  to  

signed  as  follows :   

The  undersigned  hereby  agrees  to  reimburse  you 
for  all  damages,  cost  and  expense  to  which  you  may 
be  subjected  by  reason  of  refusal  to  honor  this  said 
check. 


BANKING    FOR    BEGINNERS  147 

STOP-PAYMENT  ORDERS.— The  maker  of 
a  check  has  the  legal  right,  in  most  States,  to  stop 
payment  on  the  check  at  any  time  before  it  is  actu- 
ally paid.  So  if  he  notifies  the  bank  not  to  pay  the 
check  when  it  is  presented,  the  bank  cannot  charge 
the  amount  to  his  account.  The  request  may  be 
by  letter,  telephone,  or  in  person.  Banks  keep  a 
careful  record  of  such  stop-orders. 

CERTIFIED  CHECKS.  — It  has  been  stated 
that  checks  differ  from  bills  in  that  they  are  not 
presented  for  acceptance.  This  is  substantially 
true,  but  the  holder  of  a  check  may  occasionally 
present  it  to  the  bank  on  which  it  is  drawn,  request- 
ing the  bank  to  certify  upon  its  face  that  the 
drawer's  account  is  '*good"  for  the  amount  of  the 
check.  This  the  bank  may  do  by  writing  the  words 
"accepted,"  "certified,"  "good  when  properly  en- 
dorsed," "good,"  or  other  equivalent  words  on  the 
face,  together  with  the  date  and  the  name  of  the 
teller  or  other  officer  authorized  to  certify.  This 
may  be  done  in  writing  or  with  a  stamp.  The 
check  then  becomes  the  absolute  obligation  of  the 
bank — practically  its  promissory  note — and  in  case 
the  payee  requested  the  certification,  the  drawer 
and  endorser  are  discharged  and  the  holder  can 
only  look  to  the  bank  for  payment.  The  bank 
has  guaranteed  that  the  check  will  be  paid  on 
presentation.  A  record  is  kept  of  all  certified  or 
accepted  checks.  The  amount  is  at  once  debited 
to  the  depositor's  account  and  the  amount  that  he 


148         BANKING    FOR    BEGINNERS 

can  otherwise  draw  is  reduced  by  the  amount  of 
the  certified  check.  The  check  continues  to  be  ne- 
gotiable, and  the  endorsers  after  the  certification 
are  liable.  The  reason  for  thus  releasing  the  maker 
is  that  the  holder  had  his  choice  of  taking  money 
or  certification  at  the  bank,  and  must  abide  thereby. 
A  bank  does  not  have  to  certify  a  check.  Depositors 
may  ask  the  bank  to  certify  their  checks  before  giv- 
ing them  to  anyone  else,  for  they  are  then  more 
easily  negotiated.  But  if  the  drawer  asks  the  bank 
to  certify  the  check  before  he  delivers  it  to  the 
payee,  he  remains  liable.  In  brief,  then,  if  the 
holder  obtains  the  certification  the  maker  is  released 
and  the  holder  is  the  loser  if  the  bank  becomes  in- 
solvent; whereas,  if  the  drawer  has  obtained  the 
certification,  he  is  responsible  in  case  the  bank  fails 
within  a  short  time  after  he  delivers  the  check  to 
another. 

CASHIER'S  CHECKS.— Cashier's  checks  are 
orders  drawn  by  the  cashier  of  a  bank  upon  a  pay- 
ing teller  and  are  liabilities  of  the  bank.  They  are 
payable  on  demand.  A  bank  draft  is  an  order  by 
one  bank  on  another  bank  to  pay  a  third  person; 
a  cashier's  check  is  the  bank's  order  on  itself  for 
payment  from  its  own  funds.  It  may  be  cashed 
by  the  paying  teller  when  it  is  endorsed  by  the 
payee.  Or  it  may  be  deposited  in  another  bank. 
It  is  used  by  the  bank  when  it  buys  notes,  bills 
or  other  securities,  when  it  makes  loans  to  out- 
side parties,  and  to  pay  expense  bills.     In  some 


BANKING    FOR    BEGINNERS         149 

places  it  is  exchanged  for  the  customer's  check  in 
preference  to  making  a  certification.  Registers  are 
kept  of  all  checks  issued,  and  the  amounts  issued 
and  paid  are  sent  to  the  general  ledger  bookkeeper 
for  his  records.  A  special  form  of  cashier's  check 
may  be  used  in  paying  dividends  to  stockholders. 
A  cashier's  check  is  not  subject  to  a  "stop-order," 
since  the  act  of  issuing  it  is  regarded  as  an  accept- 
ance in  advance. 

ENDORSEMENT.  —  Since  checks  are  a  form 
of  bill  of  exchange,  the  general  rules  regarding 
endorsements  are  the  same.  It  should  be  borne 
in  mind  that  checks  endorsed  in  blank  (the  holder's 
name  being  written  on  the  back  of  the  check  and 
nothing  else)  are  for  all  practical  purposes  payable 
to  bearer  (endorsements  should  be  written  across 
the  back  of  a  check  and  not  lengthwise).  One 
should  take  care  not  to  endorse  a  check  in  blank 
until  just  before  he  presents  it  to  the  bank  for  pay- 
ment, because  if  the  check  should  be  lost,  when 
endorsed  in  blank,  the  finder  may  cash  it  (receive 
the  money  on  it)  at  the  bank.  Checks  should  be 
endorsed  exactly  as  they  are  drawn.  Thus,  if  a 
check  is  made  payable  to  John  R.  Blair,  it  should 
not  be  endorsed  J.  R.  Blair  or  John  Blair,  or  in 
any  way  except  John  R.  Blair,  and  if  the  name  is 
wrong  or  spelled  wrong,  then  the  payee  should  en- 
dorse with  the  name  as  it  is  written  on  the  face  of 
the  check,  and  put  the  correct  name  or  spelling 
underneath   that   endorsement.     Checks   that   are 


150         BANKING    FOR    BEGINNERS 

irregularly  endorsed  should  not  be  cashed.  Bank 
endorsement  stamps  are  either  "general"  or  "di- 
rect." In  the  straight  or  direct  endorsement  a 
definite  payee  is  named.  The  general  endorsement 
bears  the  words  "Pay  to  the  Order  of  any  Bank  or 
Banker."  The  use  of  the  latter  form  of  stamp 
makes  it  possible  to  endorse  all  checks  alike  and 
very  rapidly,  thus  enabling  the  bank  to  handle  and 
assort  great  numbers  of  checks  at  a  minimum  of 
time  and  labor. 

PRESENTMENT  OF  CHECKS.  —  As  previ- 
ously stated,  bills  of  exchange  must  be  presented 
within  a  reasonable  time  after  their  issue  or  the 
drawer  and  endorsers  will  be  discharged.  The 
drawer  of  a  check  remains  liable  indefinitely,  unless 
he  is  actually  injured  in  some  way  by  the  holder's 
failure  to  present  the  check  for  payment.  If  the 
drawer  suffers  any  loss  he  will  be  discharged  to 
the  extent  of  the  loss.  Thus,  Brown  gives  Smith 
a  check  for  $500.  Smith  does  not  present  this  with- 
in a  reasonable  time  and  Brown  proves  that  he  has 
been  injured  to  the  extent  of  $100.  Then  Brown 
will  only  have  to  pay  $400  on  the  check.  Suppose 
Smith  does  not  present  the  check  within  a  reason- 
able time  and  before  he  does  present  it  the  bank 
becomes  insolvent.  Then  Brown  is  discharged,  for 
if  the  maker  of  a  check  has  funds  in  the  bank  on 
which  it  is  drawn  and  the  payee  has  sufficient  time 
to  present  the  check  before  the  bank  fails  but  does 
not  do  so,  then  the  maker  is  not  at  fault  and  should 


BANKING    FOR    BEGINNERS         151 

not  be  made  to  suffer  because  of  the  payee's  neg- 
ligence. 

CERTIFICATES  OF  DEPOSIT.— A  has  $1,000 
in  X  Bank.     He  does  not  wish  to  draw  checks 
against  this  amount.    So  he  asks  for  a  "Certificate 
of  Deposit"  from  the  bank.     This  is  practically  a 
receipt  stating  that  "A  has  deposited  in  this  bank 
one  thousand  dollars  payable  to  his  order  when  he 
returns  this  certificate."    It  is  signed  by  the  cashier. 
If  certificates  are  made  for  a  definite  period,  as  for 
three  or  six  or  twelve  months,  they  are  often  made 
with  interest.    They  are  really  promissory  notes  of 
the  bank.     Certificates  of  deposit  are  sometimes 
used  to  transfer  cash  from  one  place  to  another, 
especially  when  the  place  to  which  it  is  desired  to 
transfer  it  is  a  great  distance  off.     The  depositor 
may  get  a  certificate  of  his  deposit  which  will  direct 
its  payment  to  another  person,  and  the  latter  will 
have  no  difficulty  in  getting  the  certificate  cashed, 
or  the  amount  credited  to  him  at  any  bank.    Again, 
A  deposits  $1,000  in  a  bank  for  safekeeping  or  for 
the  use  of  someone  else.     He  takes  a  certificate 
of  deposit,  stating  that  the  sum  has  been  deposited 
and  is  payable  to  the  order  of  himself  or  of  some 
other   payee.      Certificates   of   deposit   are   either 
"demand"  or  "time";   that  is,  payable  on  demand 
or  at  a  stated  time.     Certificates  of  deposit  may 
be  transferred  by  endorsement  except  in  Indiana 
and  Ohio. 


152 


BANKING    FOR    BEGINNERS 


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CHAPTER  VI 


Exchanges  and  Transfers 

CLEARINGS  AND  CLEARING  HOUSES.— 
In  a  small  town  having  but  one  bank  all  of  the 
checks  growing  out  of  purely  local  business  are 
drawn  upon  that  institution.  Let  us  suppose  that 
A  and  B  are  both  depositors  in  the  same  bank.  A 
gives  B  his  check  for  $100  in  payment  for  a  horse. 
It  is  not  necessary  for  B  to  present  the  check,  re- 
ceive the  money  and  then  redeposit  the  cash  to 
his  own  credit.  Instead,  he  deposits  the  check,  the 
bank  crediting  his  account  and  charging  the  ac- 
count of  A.  The  same  process  is  being  followed 
by  all  the  depositors  in  making  settlements  with 
each  other.  No  actual  cash  changes  hands;  there 
is  merely  an  offsetting  of  debits  with  credits  on 
the  books  of  the  bank.  This  is  known  as  the  "clear- 
ing principle."  Banks  make  use  of  this  principle 
in  settling  accounts  with  each  other.  The  agency 
through  which  they  avoid  the  constant  transfer  of 
money  among  themselves  is  the  Clearing  House. 
The  term  is  used  to  apply  either  to  the  building 
used  for  this  purpose  or  to  the  organization  or  as- 
sociation of  the  banks  united  together  for  this  and 
other  purposes.  In  its  practical  sense  the  clearing 
house  represents  a  plan  rather  than  a  tangible 
thing.  Let  us  suppose  there  are  five  banks  which 
are  members  of  a  clearing  house.     At  the  end  of 

153 


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BANKING    FOR    BEGINNERS         155 

the  day's  business  each  member  finds  itself  with 
checks  drawn  upon  the  other  four.  The  checks  of 
each  are  endorsed  with  the  bank  stamp,  enclosed 
in  a  separate  envelope  for  each  bank  and  a  total 
of  the  checks  is  listed  on  the  outside.  The  totals 
are  then  listed  opposite  the  bank  names  on  a  double 
column  sheet  and  a  footing  is  struck.  In  theory 
each  bank  assumes  that  these  checks  are  not  pay- 
able by  the  individual  banks  but  by  the  "clearing 
house."  Therefore,  at  a  fixed  time,  usually  about 
ten  o'clock  A.  M.,  each  bank  sends  a  messenger  to 
the  clearing  house  with  its  checks  against  the  other 
banks.  In  a  small  town  the  office  of  one  of  the 
members  is  used  as  a  clearing  house  and  an  officer 
of  that  bank  acts  as  "manager."  The  packages  are 
then  exchanged.  Each  clerk  writes  opposite  the 
proper  names,  the  amount  of  the  checks  on  his 
bank  presented  by  the  others.  These  amounts  are 
added  up  and  the  smaller  amount  is  subtracted  from 
the  larger.  If  the  messenger  receives  more  checks 
on  his  own  bank  than  his  bank  had  on  the  others, 
then  he  is  a  "debtor."  If  the  reverse  is  true,  then 
he  is  a  "creditor."  The  manager  then  takes  the 
record  of  the  debtor  and  creditor  balances  which, 
of  course,  must  be  equal,  thus  proving  the  correct- 
ness of  the  exchange.  The  clerks  return  to  their 
respective  banks  having  checks  only  on  themselves, 
whereas  they  came  to  the  clearing  house  with 
checks  only  on  their  neighbors. 

SETTLEMENT    OF    BALANCES.— The  ex- 


156         BANKING    FOR    BEGINNERS 

changes  having  been  made,  the  banks  now  prepare 
to  settle  the  balances.  There  are  various  ways  of 
doing  this,  depending  upon  the  size  of  the  city  and 
the  number  of  banks  in  the  clearing  house.  In  the 
smaller  towns  the  manager  of  the  clearing  house 
draws  drafts  upon  the  debtor  banks,  which  he  gives 
to  the  creditors,  who  then  present  them  and  receive 
either  the  cash  or  its  equivalent.  Or  the  manager 
may  deposit  the  drafts  of  the  debtor  banks  with 
one  of  the  members  and  draw  his  own  checks 
against  this  deposit  in  favor  of  the  creditors. 
Another  method  is  to  make  payment  by  draft 
upon  the  Federal  Reserve  Bank  of  the  district,  or 
some  other  depository.  In  the  larger  cities  settle- 
ment is  made  in  cash  or  its  equivalent,  payment 
being  made  by  the  debtor  banks  to  the  clearing 
house,  which  acts  as  agent  in  paying  over  the 
money  to  the  creditor  banks.  To  avoid  the  han- 
dling of  even  this  money,  many  clearing  houses 
conduct  a  depository  where  deposits  of  gold  and 
currency  are  received,  and  certificates  in  large  de- 
nominations, $5,000  and  $10,000  are  then  issued. 
Settlements  made  with  these  certificates  are  upon 
a  cash  basis,  yet  the  danger  of  loss  or  error  in 
handling  the  actual  money  is  avoided. 

CLEARING  COUNTRY  CHECKS.  —  The 
clearing  principle  as  applied  to  check  collection  is 
not  limited  to  the  items  payable  in  one  city.  Many 
clearing  houses  have  also  a  department  for  the 
clearing  of  country  checks.     In  such  cases  all  the 


BANKING    FOR    BEGINNERS         157 

member  banks  send  their  out-of-town  items  within 
a  certain  district  to  the  clearing  house,  which  oper- 
ates as  one  bank  acting  for  all.  Thus,  instead  of 
receiving  a  daily  letter  from  each  bank  in  the  city, 
the  country  bank  gets  all  its  checks  from  that  city 
in  one  letter  from  the  clearing  house,  to  which  it 
then  remits  with  a  single  draft.  The  Federal  Re- 
serve Act  has  carried  this  process  one  step  further 
by  requiring  the  Federal  Reserve  banks  to  act  as 
clearing  houses  for  their  member  banks.  Checks 
which  each  member  bank  sends  to  the  Federal 
Reserve  bank  serve  as  credit  offsets  to  the  checks 
which  the  Federal  Reserve  bank  receives  on  that 
member. 

UNIVERSAL  NUMERICAL  SYSTEM.— 
Checks  often  pass  through  many  banks  before  they 
come  to  the  bank  they  were  drawn  on,  and  each 
bank  has  placed  its  endorsement  on  such  checks. 
In  each  case  the  name  of  every  bank  was  registered 
either  as  payer  or  endorser.  Perhaps  but  one  in 
every  two  thousand  of  these  records  will  need  to 
be  referred  to  in  case  of  a  lost  item  and  about  one 
in  five  hundred  on  account  of  dishonor.  A  lot  of 
writing  is  thus  necessary,  but  seldom  used.  To 
reduce  this  labor  to  a  minimum  the  "Universal 
Numerical  System"  was  adopted.  A  distinctive 
number  has  been  given  every  bank  in  the  United 
States  under  a  definite,  simple,  well-ordered  plan. 
This  number,  consisting  of  a  prefix — designating 
city  or  State — and  a  second  figure  denoting  the 


158         BANKING    FOR    BEGINNERS 

individual  bank,  is  placed  at  the  right  of  the  title 
on  the  face  of  the  check,  and  at  the  lower  left-hand 
corner  of  drafts  near  the  name  of  the  paying  bank. 
On  endorsement  stamps  the  number  is  placed  on 
each  side  of  the  name  of  the  bank.  Designating 
places  and  banks  by  numbers  instead  of  names  is 
a  time-saver  and  is  being  rapidly  adopted  by  the 
banks.  The  saving  in  time  can  easily  be  seen  when 
to  indicate  the  "Continental  and  Commercial  Na- 
tional Bank,  Chicago,  Illinois,"  only  the  numerals 
2-3  are  needed.  The  "2"  means  city  No.  2  (Chi- 
cago) and  the  *'3"  shows  that  the  Continental  and 
Commercial  is  bank  No.  3  in  the  clearing  house. 
Under  this  plan  the  clerks  do  not  have  to  commit 
a  long  list  of  numbers  to  memory,  for  they  are 
printed  on  the  check.  If  an  item  is  lost  and  it  is 
necessary  to  refer  to  the  numerical  record,  the  bank 
directory  or  "Key  to  the  System"  will  show  what 
bank  the  numbers  designate.  The  extent  to  which 
the  system  may  be  used  is  left  entirely  to  the  indi- 
vidual bank.  Some  use  it  entirely,  others  only  par- 
tially as  suits  their  needs.  But  all  banks  should 
see  that  their  checks,  drafts  and  endorsement 
stamps  show  the  number,  so  that  any  bank  may 
use  the  system  without  having  to  supply  missing 
numbers. 

LETTERS  OF  CREDIT.  —  There  are  many 
ways  in  which  the  transfer  of  money  funds  may 
be  effected  between  distant  cities  or  between  dif- 
ferent persons.    One  of  the  more  important  meth- 


BANKING    FOR    BEGINNERS  159 

ods  used  primarily  in  foreign  trade  are  letters  of 
credit.  These  are  issued  by  banks.  They  are 
intended  primarily  for  the  convenience  of  travelers, 
particularly  those  in  foreign  countries.  They  are 
authorizations  to  the  bank's  correspondents  to  pay 
the  bearer  up  to  a  certain  named  amount.  Suppose 
A  wishes  to  travel  in  Europe.  He  buys  a  letter 
of  credit.  He  arrives  at  Paris  and  wishes  some 
funds.  The  letter  of  credit  gives  the  name  of  the 
bank's  correspondent  in  Paris.  A  goes  to  that  bank 
and  makes  out  a  draft  for  the  amount  he  needs. 
The  signature  on  the  draft  is  compared  with  the 
signature  on  the  letter  of  credit  and  if  they  corre- 
spond the  money  will  be  paid.  The  paying  official 
writes  down  on  the  letter  of  credit  the  amount 
withdrawn,  plus  the  commission.  At  any  time, 
therefore,  the  letter  will  show  how  much  of  the 
credit  remains  unused.  They  are  of  much  con- 
venience to  travelers,  as  advancements  can  be  se- 
cured on  them  almost  everywhere  and  no  identifi- 
cation beyond  the  comparison  of  signatures  is 
required.  Any  balance  that  may  remain  when  the 
traveler  returns  will  be  redeemed  by  the  bank  or 
banker  which  issued  the  letter. 

The  commercial  letter  of  credit  (as  distinguished 
from  the  traveler's  letter)  is  used  to  pay  for  mer- 
chandise purchased  from  exporters  in  foreign 
countries.  It  authorizes  an  exporter  to  draw 
against  the  correspondents  of  the  issuing  bank  for 
the  amount  named  in  the  letter  on   account  of 


160 


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specific  shipments.  Or  suppose  A  wishes  to  take 
a  trip  visiting  several  cities  to  make  purchases  or 
payments.  He  buys  a  "commercial  letter  of  credit," 
upon  which  he  will  be  able  to  raise  money  for  his 
purposes  at  convenient  points.  Let  us  consider  the 
case  of  the  importer  and  exporter.  A,  living  in 
Chicago,  purchases  goods  from  B,  a  merchant  in 
Hongkong.  He  goes  to  his  Chicago  bank  and  gets 
a  commercial  letter  of  credit  stating  the  terms  of 
his  purchase.  Such  a  letter  would  be  addressed  to 
some  London  bank  probably,  requesting  it  to 
"accept"  the  drafts  of  the  Hongkong  merchant  up 
to  a  certain  amount  and  provided  he  complies  with 
certain  conditions  named  in  the  letter,  concerning 
bills  of  lading,  consular  invoices,  insurance  papers, 
etc.  The  Chicago  bank  sends  this  letter  to  the 
Hongkong  merchant.  After  complying  with  the 
terms  of  the  sale  he  draws  a  draft  on  the  London 
bank  named,  attaching  the  papers  that  may  be 
named  in  the  letter  of  credit  as  having  to  accom- 
pany the  draft.  He  takes  this  draft  to  his  local 
bank  and  sells  it,  the  local  bank  of  course  deducting 
the  exchange  charges.  The  Hongkong  merchant 
has  thus  received  his  payment  for  the  goods  and  is 
out  of  the  transaction.  If  the  London  banker  ac- 
cepts the  draft  he  sends  it  to  Chicago.  A,  the 
Chicago  merchant,  can  get  the  goods  by  signing 
a  "trust  receipt,"  stating  he  will  sell  the  goods  and 
use  the  proceeds  to  pay  the  draft.  Both  the  im- 
porter and  exporter  are  benefited  by  the  transac- 


162         BANKING    FOR    BEGINNERS 


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tion,  the  exporter  getting  his  money  when  he  sends 
the  goods  and  the  importer  being  able  to  sell  the 
goods  before  he  has  to  pay  for  them.  If  his  credit 
had  not  been  quite  as  good  with  his  Chicago  bank 
the  latter  might  have  stored  the  goods  and  turned 
them  over  to  him  only  when  he  showed  he  had 
sold  them  and  needed  them  to  make  delivery  and 
get  payment.  Or  they  might  be  parcelled  out  to 
him  in  small  lots.  The  Chicago  bank  gets  a  com- 
mission from  A,  and  the  London  bank  gets  a  com- 
mission for  accepting  the  draft. 

TRAVELERS'  CHECKS.  — A  modified  form 
of  the  traveler's  letter  of  credit  is  the  traveler's 
cheque  issued  by  the  American  Bankers'  Associa- 
tion and  others.  The  "A.  B.  A."  Cheques  are  of 
convenient  size  and  are  sold  fastened  in  a  handy 
leather  wallet  or  pocketbook,  from  which  they  may 
be  torn  as  needed.  They  are  issued  in  four  de- 
nominations— $10  (blue),  $20  (green),  $50  (straw), 
$100  (orange) — and  a  traveler  can  have  a  book  of 
cheques  made  up  in  any  amount  to  suit  his  require- 
ments. At  the  time  the  cheques  are  bought,  the 
purchaser  writes  his  name  on  the  face  of  each  one 
(top  line  on  the  left)  and  he  is  instructed  not  to 
countersign  them  (bottom  line  on  the  left)  until 
presenting  them  for  payment.  Hotels,  banks,  trans- 
portation companies  and  all  others  called  upon  to 
accept  the  cheques  should  require  the  holder  to 
countersign  in  the  presence  of  the  person  accepting 
them,  when  the  signature  and  counter-signature 


166         BANKING    FOR    BEGINNERS 

should  be  compared.  These  cheques  are  accepted 
throughout  America  and  Europe  (under  normal 
conditions)  by  hotels,  railroads,  steamship  lines, 
sleeping  car  companies,  and  the  principal  stores 
and  shops.  They  may  be  cashed  at  practically  all 
banks,  including  the  strongest  banking  institutions 
in  all  the  larger  cities  and  towns. 

OTHER  FORMS  OF  CREDIT  FOR  TRAV- 
ELERS.— Some  people  prefer  to  take  bills  of  ex- 
change with  them  when  traveling  in  foreign 
countries.  Or  they  may  take  ordinary  drafts  on 
some  New  York  bank.  They  can  get  these  cashed 
at  any  European  bank  by  paying  a  small  amount 
for  exchange  and  by  being  properly  identified. 
Travelers'  checks  are  now  very  largely  displacing 
letters  of  credit,  bills  of  exchange  and  bank  drafts 
as  credit  instruments  used  by  travelers.  Bills  of 
exchange  on  banks  in  this  country  and  drafts  upon 
individuals  in  this  country  are  discussed  in  Chapter 
IV.  Bills  of  exchange  drawn  upon  banks  in  an- 
other country  or  on  private  individuals  or  business 
firms  in  some  other  country  are  known  as  "foreign 
bills  of  exchange."  Also  all  bills  of  exchange  that 
are  payable  in  another  State  within  the  United 
States  are  called  "Foreign  Bills  of  Exchange."  Let- 
ters of  credit  and  travelers'  checks  are  forms  of 
bills  of  exchange,  provision  having  been  made  pre- 
viously for  their  acceptance. 

UNITED  STATES  POSTAL  SERVICE.—A 
much  larger  volume  of  money  transfers  takes  place 


BANKING    FOR    BEGINNERS  167 

within  the  United  States  than  for  travelers  abroad 
and  importers  and  exporters.  In  these  domestic 
remittances  the  postal  service  of  the  United  States 
is  of  vital  importance  to  banks  and  their  customers. 
It  is  conducted  not  as  a  money  making  institution 
but  to  provide  a  safe,  swift  and  convenient  way  for 
sending  letters,  packages  and  printed  matter  of  dif- 
ferent kinds  at  small  expense.  Indeed,  it  has  been 
shown  at  times  that  on  some  classes  of  mail  the 
Government  actually  loses  money. 

REGISTERED  MAIL.— All  domestic  mail  mat- 
ter except  fourth-class  matter  (domestic  parcel 
post  mail)  can  be  registered  at  the  low  rate  of  ten 
cents  for  each  package  (in  addition  to  the  regular 
postage).  Fourth-class  matter  may  be  insured. 
Each  package  registered  must  bear  the  name  and 
address  of  the  sender.  Indeed,  it  is  advisable  that 
all  letters  sent  through  the  mails  should  bear  the 
sender's  name  and  address,  so  that  if  necessary 
they  may  be  returned  to  him.  A  receipt  for  regis- 
tered packages  will  be  returned  from  the  persons 
to  whom  they  are  sent  if  they  are  endorsed  "receipt 
desired,"  or  words  meaning  the  same  thing.  Mail 
matter  can  be  registered  at  all  postoffices  in  the 
United  States.  An  indemnity — not  to  exceed  $50 
for  any  one  registered  piece,  or  the  actual  value  of 
the  piece  if  it  is  less  than  $50 — will  be  paid  for 
the  loss  of  first-class  registered  matter  mailed  at 
and  addressed  to  a  United  States  postofBce.  Like- 
wise an  indemnity  of  not  to  exceed  $25  will  be  paid 


168         BANKING    FOR    BEGINNERS 

for  domestic  third-class  matter.  Money  is  some- 
times sent  by  this  method,  but  as  not  over  $50  will 
be  paid  for  its  loss  it  is  not  often  done.  However, 
much  currency  and  some  valuable  commercial  paper 
is  sent  through  the  registered  mail,  the  package 
first  being  insured  in  an  insurance  company. 
Money  is  usually  sent  by  registered  mail  from  such 
postoffices  as  are  not  allowed  to  issue  money  orders ; 
or  such  towns  as  do  not  contain  express  offices. 
No  indemnity  will  be  paid  if  the  loser  has  been 
reimbursed  in  some  other  manner.  Claims  for 
indemnity  must  be  made  within  one  year  from  date 
of  loss  of  domestic  mail  and  within  one  year  from 
the  date  of  mailing  of  foreign  mail.  The  limit  of 
indemnity  paid  for  registered  articles  lost  in  mail 
sent  to  foreign  countries  is  $10. 

POSTOFFICE  MONEY  ORDERS.  —  The 
method  usually  used  by  business  men  in  paying 
accounts  or  debts  in  some  other  city  is  to  send 
their  creditor  a  bank  draft.  Or  they  might  send 
a  check  or  a  promissory  note.  Other  methods  are, 
however,  just  as  safe  and  almost  as  convenient. 
One  of  these  is  the  use  of  postoffice  money  orders, 
which  are  of  two  kinds,  domestic  and  international. 
Generally  speaking,  domestic  money  orders  are 
payable  at  home,  while  international  money  orders 
are  payable  abroad.  To  secure  a  money  order  it 
is  necessary  to  fill  out  an  application  blank,  which 
is  furnished  by  the  postoffice  authorities,  stating 
the  name  and  address  of  the  payee  and  the  remitter, 


BANKING    FOR    BEGINNERS  169 

together  with  the  amount  of  money  it  is  desired 
to  send.  On  receipt  of  the  application  and  the 
money  (plus  a  small  charge),  the  postmaster  issues 
the  money  order,  which  is  addressed  to  the  post- 
master at  the  place  where  the  order  is  being  sent, 
who  is  directed  to  pay  to  the  payee  named  in  the 
money  order  the  sum  of  money  stated  therein.  The 
remitter  sends  the  money  order  to  the  payee,  who, 
on  presenting  it  at  the  postoffice  where  he  lives, 
can  secure  the  money  on  proper  identification.  All 
postoffices  except  a  few  in  the  smallest  towns  are 
allowed  by  the  Government  to  issue  money  orders. 
Money  orders  can  be  used  to  send  money  only 
to  such  offices  as  are  allowed  to  issue  them.  The 
maximum  amount  for  which  a  single  money  order 
may  be  drawn  is  $100.  The  applications  for  money 
orders  are  kept  three  years  by  the  issuing  office. 
As  stated  above  all  domestic  money  orders  must 
be  made  payable  at  a  designated  money  order  office ; 
but  it  is  very  important  to  notice  that  those  issued 
at  any  money  order  office  in  the  continental  United 
States,  excepting  Alaska,  may  be  paid  at  any  money 
order  office  in  the  continental  United  States,  ex- 
cepting Alaska,  if  they  are  presented  for  payment 
on  or  before  the  expiration  of  the  thirtieth  day 
following  the  date  of  issue.  If  they  are  presented 
after  that  date  and  within  one  year  from  the  last 
day  of  the  month  in  which  they  are  issued,  they 
shall  be  paid  only  at  the  office  designated  in  the 
money  order  as  the  paying  office,  or  repaid  at  the 


170         BANKING    FOR   BEGINNERS 

office  of  issue.  The  postmaster  will  not  pay  the 
order  until  he  is  satisfied  that  the  person  present- 
ing it  is  the  person  named  in  the  order.  Before  it 
is  paid  the  holder  will  be  required  to  receipt  it. 
Postoffice  money  orders  may  be  transferred  by  en- 
dorsement, but  only  one  endorsement  is  permitted. 
Banks  will  frequently  accept  money  orders  on  de- 
posit. Stamps  of  banks  who  have  handled  the  order 
are  not  regarded  as  endorsements. 

EXPRESS  MONEY  ORDERS.— Express  com- 
panies also  issue  money  orders,  which  are  payable 
at  any  of  their  offices.  The  leading  companies  have 
offices  or  agencies  in  every  part  of  the  United 
States.  Small  fees  are  required.  These  orders, 
unlike  the  postoffice  money  orders,  can  be  negoti- 
ated any  number  of  times.  Banks  will  receive  them 
on  deposit  as  readily  as  they  will  take  checks  or 
drafts. 

MONEY  SENT  BY  TELEGRAPH.— Money 
funds  may  be  transferred  from  one  place  to  an- 
other by  telegraph.  Only  the  larger  offices  of  the 
telegraph  companies  are  permitted  to  send  such 
orders  and  they  can  only  be  sent  to  certain  offices. 
The  paying  office  requires  the  person  presenting 
the  telegram  to  prove  that  he  is  the  person  named 
in  it.  This  method  of  sending  money  is  much  more 
expensive  than  the  other  methods,  and  is  used  only 
under  conditions  requiring  prompt  dispatch. 

EXPRESSING  COIN  OR  BULLION.  — In 
spite  of  the  many  ways  in  which  funds  may  be 


BANKING    FOR    BEGINNERS  171 

safely  and  securely  transmitted  from  place  to  place 
by  bankers  or  others,  it  is  occasionally  necessary 
to  ship  actual  money  and  no  substitutes  will  suffice. 
The  safest  way  in  which  to  send  coin,  currency  or 
bullion  from  one  place  to  another  is  by  express. 
The  shipper  places  the  money  in  an  envelope  and 
it  is  not  counted  by  the  express  company,  which 
simply  guarantees  the  safe  delivery  of  the  package. 
The  cost  of  shipping  money  by  express  varies  with 
the  amount  and  distance.  The  express  companies 
have  one  rate  applicable  to  property  valued  at  not 
over  $50  and  another  for  property  valued  at  $50 
or  over.  These  rates  are  regulated  by  the  Inter- 
state Commerce  Commission.  Large  shippers  of 
money  are  permitted  to  secure  a  special  rate  from 
the  company  and  the  Government  is  given  very 
low  rates.  Uniform  express  receipts  are  used  by 
all  express  companies. 


172 


BANKING    FOR    BEGINNERS 


ENDORSEMENT  STAMPS  SUCH  AS  ARE  USED  BY 

BANKS  AND   BY  MOST  LARGE  BUSINESS 

HOUSES.    OBSERVE  THE  USE  OF  THE 

UNIVERSAL  NUMERICAL  SYSTEM. 


Pay  to  the  order  of 

ANY  BANK,  BANKER  OR  TRUST  COMPANY. 

All  Prior  Endorsements  Guaranteed. 

MAY  8,  1917. 

FIRST  NATIONAL  BANK, 

STATETOWN. 

59-16       WARREN  DAY,  Cashier.       59-16 


PAY    TO    THE    ORDER    OF 

THE  FIRST  NATIONAL  BANK 

64  OF  STATETOWN.  64 

BROWN  PRINTING  CO. 


PAY    TO    THE    ORDER    OF 

AMERICAN  BANKERS  BANK. 

JAN.  17,  1917. 

FIRST  NATIONAL  BANK, 

59-16         STATETOWN.         59.,^ 
WARREN  DAY,  Cashier 


CHAPTER  VII 


Bills  of  Lading  and  Other  Documents 

BILLS  OF  LADING.— A  bill  of  lading  is  an 
itemized  statement  of  goods  shipped.  The  pos- 
session of  it  gives  the  purchaser,  or  the  person  to 
whom  the  goods  are  shipped,  a  right  to  receive 
them.  The  person  shipping  the  goods  is  called  the 
"consignor";  the  person  receiving  the  goods  is 
known  as  the  "consignee."  The  bill  of  lading  is 
given  by  the  carrier  (steamboat  company,  railroad, 
etc.)  to  the  person  shipping  the  goods.  It  is  a 
receipt  by  the  carrier  acknowledging  the  accept- 
ance of  goods.  It  is  also  a  contract  between  the 
carrier  and  shipper  stipulating  the  terms  and  man- 
ner of  shipment,  and  the  carrier's  responsibility. 
Thus,  we  can  say  that  the  bill  of  lading  is  both 
a  receipt  and  a  contract.  There  are  two  kinds  of 
bills  of  lading:  (1)  the  "straight  bill,"  where  the 
goods  are  consigned  or  sent  to  a  specified  person, 
which  is  non-negotiable;  and  (2)  the  "order  bill," 
which  is  negotiable.  The  latter  states  that  the 
goods  are  sent  to  the  order  of  any  person  named 
in  the  bill  as  consignee.  In  the  "order"  bill  en- 
dorsement is  necessary  to  secure  the  goods.  Such 
order  bills  are  salable  credit  instruments  and  may 
be  transferred.  It  is  a  favorite  form  of  collateral 
for  loans  from  banks.  Two  copies  of  the  bill  of 
lading  (B/L)  are  usually  made.     One  of  these  is 

173 


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178         BANKING    FOR    BEGINNERS 

signed  by  the  shipper  and  delivered  to  the  carrier 
and  the  other  is  signed  by  the  carrier's  agent  and 
delivered  to  the  shipper.  Usually  the  consignor 
sends  his  copy  to  the  consignee.  When  the  latter 
receives  it  he  has  something  to  prove  that  the  goods 
should  be  delivered  to  him. 

WHAT  A  BILL  OF  LADING  MUST  CON- 
TAIN.— Since  bills  of  lading  (both  straight  and 
order)  are  much  used  for  collateral,  banks  should 
know  when  they  are  good.  Every  bill  must  con- 
tain the  following  essentials:  (1)  date  of  issue; 
(2)  name  of  person  from  whom  the  goods  have 
been  received;  (3)  place  where  they  have  been 
received;  (4)  place  to  which  they  are  to  be  sent; 
(5)  a  statement  whether  the  goods  are  to  be  de- 
livered to  a  specified  person,  or  to  that  person's 
order;  (6)  a  description  of  the  goods  or  of  the 
packages  containing  them  (this  description  may 
be  in  general  terms);  and  (7)  the  carrier's  sig- 
nature, which  may  be  made  by  its  agent.  The 
carrier  may  insert  in  the  bill  any  terms  not  incon- 
sistent with  the  foregoing  essentials,  and  that  do 
not  impair  his  obligation  to  exercise  reasonable 
care  in  handling  the  goods. 

ACCEPTANCE  AND  CARRIER'S  LIEN. — 
If  the  shipper  receives  the  bill  and  makes  no  ob- 
jection at  the  time  to  its  terms,  then  neither  he 
nor  any  other  person  can  afterwards  deny  that 
he  is  bound  by  the  lawful  terms  of  the  bill.  The 
carrier  has  a  lien  upon  the  goods  for  the  payment 


BANKING    FOR    BEGINNERS         179 

of  freight,  storage  and  other  charges.  In  other 
words,  until  all  charges  are  paid  he  does  not  have 
to  deliver  the  goods. 

BILLS  OF  LADING  AS  COLLATERAL  FOR 
LOANS. — Suppose  A  wishes  to  borrow  $1,000  from 
some  bank.  He  gives  the  bank  his  promissory  note 
and  also  a  bill  of  lading  for  certain  goods.  If  A 
is  unable  to  pay  the  note  when  it  is  due  the  bank 
can  demand  the  goods  for  which  the  bill  of  lading 
was  issued  and  sell  them.  Banks  in  receiving  such 
bills  should  remember:  (1)  the  bill  of  lading  does 
not  guarantee  the  quality  or  quantity  of  the  goods, 
since  the  description  is  furnished  by  the  shipper, 
and  if  the  latter  has  deliberately  or  unintentionally 
deceived  the  carrier  the  latter  will  not  be  held  liable 
to  deliver  the  goods  described  in  the  bill  of  lading, 
but  only  the  goods  actually  received;  (2)  part  of 
the  goods  may  have  been  delivered  and  their  de- 
livery not  stated  in  the  bill;  (3)  the  goods  may 
have  deteriorated.  Bills  that  are  old  (known  as 
"stale  bills")  should  be  very  carefully  investigated, 
for  the  goods  may  have  been  lost  or  destroyed  or 
injured  in  some  way,  so  that  the  bill  would  be  of 
no  use  to  the  bank  if  it  had  to  proceed  on  it. 

BILLS  OF  LADING  WITH  DRAFT  AT- 
TACHED.— Suppose  A,  of  Chicago,  receives  an 
order  for  a  bill  of  goods  amounting  to  $1,000  from 
B,  of  Minneapolis.  A  does  not  wish  to  ship  the 
goods  without  being  assured  that  payment  will  be 
promptly  made  (perhaps  he  does  not  know  B,  or 


180 


BANKING    FOR    BEGINNERS 


NOTICE  BY  BANK  TO  CONSIGNOR  THAT  DRAFT 

WITH  BILL  OF  LADING  ATTACHED  HAS 

NOT  BEEN  PAID 


The  First  National  Bank 


190 


Dear  Sir: 

We  have  received  your  favor  of 

enclosing  Draft with  Bill  of  Lading  attached  on 


We  have  made  presentation  to  consignee         and 
answer  is  made  that  the  goods  are  not  yet  here,  and 

that  the  Draft will  receive  attention  as  soon  as 

the  goods  arrive. 

We  have  no  way  of  ascertaining  the  arrival  of 

goods    except   by    notice    from   the   consignee , 

and  unless  we  receive  instructions  from  you  to  the 

contrary  we  will  hold  the  Draft here  until  the 

consignee         inform  us  that  the  goods  are  in. 

We  shall  be  pleased  to  comply  with  any  special 
instructions  that  you  may  wish  to  give  us. 
Yours  very  truly, 

Cashier. 


BANKING    FOR    BEGINNERS  181 

B's  credit  is  not  very  good).  The  best  way  to  be 
sure  of  this  is  to  ship  the  goods  "C.  O.  D."  by 
freight.  This  is  usually  done  by  means  of  an 
"order"  form  of  bill  of  lading  with  draft  attached. 
A  would  send  the  goods  to  the  order  of  himself 
at  Minneapolis,  being  both  consignor  and  con- 
signee. He  would  also  endorse  the  bill  of  lading 
and  attach  it  to  a  draft  drawn  on  B.  The  draft 
would  be  sent  to  some  Minneapolis  bank  for  col- 
lection from  B.  When  B  pays  the  draft  the  bank 
will  turn  over  to  him  the  bill  of  lading,  and  he  can 
then  get  the  goods,  since  the  bill  has  already  been 
endorsed  to  him.  B  would  be  informed  of  the  start 
of  the  shipment,  and  also  advised  how  the  goods 
were  shipped. 

SENDING  GOODS  BY  EXPRESS.— In  an- 
other chapter  we  saw  how  coin  and  bullion  is  often 
sent  by  express.  The  same  rules  apply  to  ship- 
ments of  other  articles  by  express.  Shippers  should 
always  address  packages  clearly  and  also  put  their 
own  names  on  them.  They  should  always  get  a 
receipt  from  the  express  company.  Express  com- 
panies are  responsible  for  losses  caused  by  the  neg- 
ligence of  their  agents.  The  receiver  of  an  express 
package  must  sign  a  receipt  on  getting  it  from  the 
express  company's  agent.  The  charges  may  be 
prepaid  or  not,  as  the  sender  prefers.  If  the  goods 
are  sent  C.  O.  D.  (Collect  on  Delivery — to  be  paid 
for  when  delivered)  the  sender  makes  out  a  bill 
of  the  goods  (giving  names  of  buyer  and  seller, 


182         BANKING    FOR    BEGINNERS 

date  and  place  of  sale,  kind,  quantity  and  price  of 
the  goods,  and  the  terms  of  the  sale).  This  bill 
is  placed  in  an  envelope  called  a  C.  O.  D.  envelope, 
which  is  sent  with  the  goods.  Before  the  goods 
are  surrendered  by  the  express  company  to  the 
consignee,  the  express  charges  for  carrying  and 
delivering  the  goods  and  the  amount  of  the  bill  are 
collected.  Sometimes  the  express  company  col- 
lects charges  for  the  return  to  the  shipper  of  the 
money  collected.  If  the  company  delivers  goods, 
sent  C.  O.  D.,  without  collecting  the  money  it  will 
be  liable  for  any  injury  suffered  by  the  shipper. 

INVOICES.— When  goods  are  sent  C.  O.  D. 
by  express  the  sender  makes  out  a  bill  containing 
a  description  of  the  goods.    Such  an  itemized  state- 

INVOICE  WITH  TERMS  OF  DISCOUNT  NOTED.    IF 

TRADE  DISCOUNT  WERE  ALLOWED  IT  WOULD 

APPEAR  UNDERNEATH  THE  TOTAL  PRICE 

ADDED  AFTER  THE  DESCRIPTION  OF 

THE  GOODS 


St.  Paul,  Minn.,  April  1,  1913. 

Mr Dr. 

Bought  of 

Craig  and  Jensen,  Wholesale  Druggists 

Terms:     Net  60  days 

Less  3%  if  paid  within  10  days. 

(Here  follows  description  of  goods  bought  with  price) 


BANKING    FOR    BEGINNERS         183 

merit  is  also  made  out  whenever  goods  are  sold, 
and  a  copy  is  given  to  the  buyer  by  the  seller. 
This  statement  is  known  as  an  invoice.  There  are 
columns  in  which  to  place  any  discount  that  may 
be  allowed.  When  such  bills  or  invoices  are  re- 
ceipted, showing  that  they  have  been  paid,  the 
receipt  should  always  appear  on  the  face.  Invoices 
sometimes  are  assigned  to  banks  and  are  known 
as  "Accounts  Receivable,"  the  sender  possessing  a 
lien  upon  the  accounts. 

RECEIPTS. — When  one  person  receives  money 
from  another  it  is  customary  to  give  a  receipt  or 
voucher,  showing  the  amount,  the  purpose  for 
which  the  money  was  paid,  the  date,  the  name  of 
the  person  paying  the  money,  and  the  signature 
of  the  person  paid.  Blanks  for  receipts  can  be 
obtained  at  any  stationery  store.  Care  should  be 
taken  to  preserve  all  receipts  of  whatever  kind,  for 
they  are  often  very  important  as  evidence  if  there 
is  an  attempt  made  to  collect  a  second  payment. 

RECEIPT    FOR    PAYMENT     ON     ACCOUNT     FOR 

ANOTHER 


Belvidere.  111..  Oct.   10.   1916. 
$22.00 

Received  of  Thomas  Hill,  twenty-two  dollars,  to 
apply  on  the  account  of  George  H.  Jones. 

JOHN  KELLY. 


184         BANKING    FOR    BEGINNERS 

RECEIPT  FOR  PART  PAYMENT  ON  NOTE. 

(The  Amount  Paid  Should  Also  Be  Endorsed 

on  the  Back  of  the  Note.) 


$60.00 

Winona,  Minn., 

May  15 

1894. 

Received  of  Carl  Lindquist,  sixty  dollars,  to 
on  his  note  of  one  hundred  and  fifty  dollars 
favor,  dated  January  11,  1891. 

apply 
in  my 

SEVERN 

NELSON. 

RECEIPT  TO  APPLY  ON  ACCOUNT. 

(If  the  Account  Had  Been  Paid  in  Full  the  Words  "In  Full 

of  Account  to  Date"  Might  Have  Been  Added  After 

the  Word  "Dollars.") 


$50.00 

New  Orleans, 

La.,  February 

14, 

1916. 

Received 

of  James 

Allen 

fifty  dollars. 

to 

apply 

on  his  account. 

GEORGE  BUSH. 

RECEIPT  FOR  MERCHANDISE  ON  ACCOUNT. 


Newton,  Iowa,  November  3,  1911. 
$80.00 

Received  of  John  Fisher,  80  bushels  of  wheat  at 
one  dollar  per  bushel,  to  apply  on  account. 

VINCENT  ROE. 


BANKING    FOR    BEGINNERS  185 

RECEIPT  BY  PERSON  UNABLE  TO  WRITE. 

(All  Documents  Signed  by  Such  Persons  Should 

Also  Be  Signed  by  Witnesses.) 


$20.00 

Columbia,  Mo., 

September  25, 

1910. 

Received 

of  Fred  Smith, 

twenty  dollars, 

in  full 

of  all  demands  to  date. 

Witness : 

C.  L.  ARNOLD 

B.  J.  QUIST 

His 

JOHN  X  SMITH. 

Mark 

ELEVATOR  RECEIPTS.  —  All  receipts  are 
not  made  for  money  received.  They  may  be  for 
goods  received.  Thus,  elevator  receipts  show  that 
grain  is  held  in  storage  at  an  elevator.  They  are 
somewhat  like  warehouse  receipts,  which  are  here- 
inafter considered. 

WAREHOUSE  RECEIPTS.  — A  warehouse 
receipt  is  for  goods  classified  and  placed  in  a  ware- 
house. It  is  a  receipt  for  goods  received  and  a  con- 
tract for  their  safe  care  and  redelivery.  It  is  given 
by  the  warehouse  to  the  depositor.  There  are  two 
forms:  (1)  "non-negotiable,"  which  states  that 
the  goods  will  be  delivered  to  the  depositor  or  to 
some  other  specified  person;  (2)  "negotiable," 
which  states  that  the  goods  received  will  be  deliv- 
ered to  bearer  or  to  the  order  of  some  person  named 
in  the  receipt.    A  provision  inserted  in  a  negotiable 


186 


BANKING    FOR    BEGINNERS 


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BANKING    FOR    BEGINNERS  187 

receipt  stating  that  it  is  non-negotiable  is  without 
effect.  Warehouse  receipts  may  be  issued  only  by 
licensed  warehousemen,  and  must  embody  the  fol- 
lowing essentials:  (1)  location  of  the  warehouse; 
(2)  date  of  issue;  (3)  consecutive  number  of  the 
receipt;  (4)  whether  the  goods  will  be  delivered 
to  bearer,  to  a  specified  person,  or  to  the  order  of 
some  specified  person;  (5)  rate  of  storage  charges; 
(6)  description  of  the  goods  or  of  the  packages 
containing  them;  (7)  signature  of  the  warehouse- 
man or  his  agent.  If  the  warehouseman  is  owner 
in  whole  or  in  part  of  the  goods  that  fact  must  be 
stated.  If  any  advances  have  been  made  and  lia- 
bilities incurred  for  which  the  warehouseman  claims 
a  lien  on  the  goods  (right  to  be  paid  before  they 
are  delivered)  that  must  also  be  stated  in  the  re- 
ceipt. If  any  of  the  essential  terms  are  omitted 
the  warehouseman  is  liable  for  any  injury  caused 
thereby.  He  may  put  in  the  receipt  any  terms  not 
contrary  to  law  or  not  relieving  him  of  reasonable 
care  of  the  goods  stored.  As  in  the  case  of  bills 
of  lading,  these  provisions  are  subject  to  change  in 
some  States. 

USE  OF  WAREHOUSE  RECEIPTS.— Sup- 
pose A,  a  farmer,  deposits  certain  grain  in  a  ware- 
house (usually,  however,  the  man  who  purchases 
the  grain  from  the  farmer  will  be  the  one  to  do 
this).  He  secures  a  receipt  and  is  entitled  to  the 
possession  of  the  grain  on  payment  of  the  charges. 
He  then  wishes  to  sell  the  grain  to  B.    He  endorses 


188 


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BANKING    FOR    BEGINNERS  189 

the  receipt  to  B  and  is  paid  for  it  (only  in  the  case 
of  a  negotiable  receipt,  and  most  receipts  are  made 
negotiable).  It  may  also  be  used  as  collateral  for 
the  advancement  of  funds.  Of  course,  when  a 
receipt  is  negotiable,  it  may  be  passed  any  number 
of  times.  Again,  terminal  elevator  companies  often 
buy  a  great  deal  of  grain  and  to  do  so  must  bor- 
row heavily  at  the  banks.  To  get  the  loans  they 
deposit  as  collateral,  elevator  receipts,  which  are 
regarded  as  good  security.  When  the  grain  is  sold 
the  loans  are  paid  and  the  receipts  surrendered. 

OBLIGATIONS  AND  RIGHTS  OF  WARE- 
HOUSEMEN.—A  holder  in  good  faith  of  a  ware- 
house receipt  is  entitled  to  rely  on  the  statements 
it  contains.  So  warehousemen  should  be  careful 
not  to  issue  receipts  except  for  goods  actually 
delivered  to  them.  Nor  should  they  deliver  goods 
to  anyone  except  upon  surrender  of  the  receipt. 
Otherwise,  they  might  have  to  deliver  a  second 
time  and  have  to  buy  the  goods  themselves  with 
which  to  do  so.  Of  course,  if  1,000  bushels  of 
wheat  are  deposited  the  warehouseman  does  not 
have  to  deliver  the  same  identical  wheat,  but  he 
must  deliver  1,000  bushels  of  the  same  grade.  The 
warehouseman  is  justified  in  delivering  the  goods 

(1)  to  the  person  lawfully  entitled  to  the  goods; 

(2)  to  that  person's  agent;  (3)  to  a  person  entitled 
to  delivery  by  the  terms  of  a  non-negotiable  receipt ; 
(4)  to  someone  who  has  written  authority  (not 
an  endorsement)  from  such  person;    (5)  to  a  per- 


190 


BANKING    FOR    BEGINNERS 


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BANKING    FOR    BEGINNERS  191 

son  in  possession  of  a  negotiable  receipt  by  the 
terms  of  which  the  goods  are  deliverable  to  him 
or  to  order  or  to  bearer.  If  the  receipt  has  been 
in  any  way  altered  the  warehouseman  is  liable  only 
according  to  the  original  terms.  If  a  receipt  has 
been  lost  the  warehouseman  may  be  ordered  by 
a  court  to  deliver  the  goods,  provided  that  loss  or 
destruction  of  the  receipt  is  proved  and  that  the 
person  to  whom  the  goods  are  then  delivered  fur- 
nishes a  bond  to  protect  the  warehouseman  from 
loss  in  case  the  original  receipt  should  ever  be  pre- 
sented. The  warehouseman  is  liable,  unless  the 
receipt  specifically  provides  otherwise,  for  any  loss 
or  injury  to  goods  deposited  with  him  that  "reason- 
able  diligence"  could  have  avoided. 

STATEMENTS  OF  ACCOUNT.  —  Banks 
periodically  render  statements  of  account  to  their 
depositors.  Business  men  and  firms  also  make  out 
statements  of  account,  which  are  sent  to  their 
debtors.  They  show  all  the  debits  and  credits  of 
an  account  as  they  appear  on  the  seller's  books. 
It  is  not  necessary  to  make  out  an  itemized  state- 
ment if  an  invoice  was  made  out  and  delivered  to 
the  purchaser  when  each  purchase  was  made.  If 
this  has  been  the  case  it  will  be  sufficient  to  simply 
give  the  date  and  amount  of  each  purchase  in  the 
statement,  with  the  words:  "As  per  bill  rendered." 
Retail  businesses  usually  send  out  these  statements 
at  the  end  of  each  month.  Wholesale  dealers 
usually  make  them  out  when  the  term  of  credit 


192         BANKING    FOR    BEGINNERS 

has  expired.  For  instance,  if  goods  have  been  sold 
on  sixty  days'  credit,  the  statement  will  not  be  sent 
out  until  this  period  is  up. 

CASH  DISCOUNT.— Goods  are  generally  sold 
on  credit.  The  sellers  usually  allow  a  certain  per- 
centage of  the  total  off  if  the  bills  are  paid  before 
they  are  due.  Thus,  if  the  whole  amount  is  due 
in  sixty  days,  the  wholesaler  may  allow  a  certain 
per  cent,  off  from  the  total  if  it  is  paid  within  ten 
days.  Suppose  the  per  cent,  that  would  be  allowed 
off  is  three.  Then  the  terms  of  discount  might 
appear  on  the  bill  as  3/10,  meaning  that  a  discount 
of  three  per  cent,  will  be  allowed  if  the  bill  is  paid 
in  ten  days. 

TRADE  DISCOUNT.  —  Manufacturers  and 
dealers  often  allow  to  their  best  customers,  and 
those  buying  in  large  quantities,  what  is  known 
as  trade  discount.  This  means  that  a  discount  is 
allowed  from  the  amount  of  the  bill.  Suppose  A 
buys  from  B  $200  worth  of  goods.  He  is  allowed 
a  discount  of  10%  from  the  list  price.  Then  he 
would  only  have  to  pay  $180  to  B.  Suppose  the 
terms  had  stipulated  that  he  be  allowed  a  discount 
of  10%  and  5%  off  from  the  list  price.  This  would 
not  give  him  a  reduction  of  15%  from  the  $200,  but 
it  would  give  him  a  further  discount  of  5%  of  the 
$180,  or  $9,  making  only  $171  A  would  have  to 
pay.  He  might  in  addition  be  allowed  a  cash 
discount. 

CREDIT    MEMORANDUMS.— Sometimes  re- 


BANKING    FOR    BEGINNERS         193 

bates  or  deductions  are  made  to  purchasers.  This 
may  be  done  because  the  goods  are  not  satisfac- 
tory and  are  returned,  or  the  price  is  higher  than 
the  purchaser  had  expected,  or  for  some  other 
reason.  The  seller  will  make  out  and  send  to  the 
purchaser  a  memorandum  of  credit,  which  shows 
how  much  credit  or  reduction  he  will  be  allowed. 
It  differs  from  the  invoice  in  that  it  shows  a  credit 
instead  of  a  debit.  Credit  memorandums  are 
usually  printed  in  red. 

ORDERS  FOR  GOODS.  —  These  are  very 
similar  to  drafts.  They  are  orders  by  one  party 
to  another  party  to  give  the  party  holding  the  order 
the  goods  mentioned.  Thus,  A  orders  B  to  give 
C  goods  from  B's  store  to  the  value  of  $10.  This 
order  might  be  made  out  in  the  accompanying 
form: 


Minneapolis,  Minn.,  July  10,  1911. 

Mr.  Robert  Bums: 

Please   deliver   to   Charles    Conant,    goods   from 
your  store  to  ten  dollars.    Charge  to  my  account. 

THOMAS  GORDON. 


Such  orders  are  not  negotiable.  This  does  not 
mean  that  they  cannot  be  given  to  someone  else. 
But  they  can  only  be  "assigned."  What  is  the 
difference    between    "assignment"    and    "negotia- 


194         BANKING    FOR    BEGINNERS 

tion"?  Suppose  B  steals  a  draft  from  A.  He  can 
get  nothing  on  it  himself,  but  if  the  draft  is  in 
the  right  form  he  can  sell  it  to  an  innocent  pur- 
chaser who  can  enforce  it  fully — it  has  been  ne- 
gotiated. Take  the  above  order  for  goods,  which 
we  said  could  only  be  assigned.  This  means  that 
if  Gordon  turned  it  over  to  Smith,  that  Smith  could 
only  get  Gordon's  rights,  while  in  the  case  of  ne- 
gotiation, an  innocent  purchaser  may  get  more 
rights  than  were  possessed  by  the  party  from  whom 
he  purchased  such  an  instrument. 


CHAPTER  VIII 


Special  Problems  in  Law 

CONSIDERATION.  —  In  Chapter  II  it  was 
shown  that  "consideration"  means  that  "neither 
party  has  a  right  to  get  anything  from  the  other 
unless  something  has  been  given  or  promised  in 
return."  In  all  forms  of  contracts  a  consideration 
is  absolutely  necessary  in  order  to  enable  either 
party  to  compel  the  other  to  do  what  has  been 
agreed  to.  In  negotiable  instruments,  such  as 
checks  and  drafts,  the  consideration  is  presumed 
to  exist  until  it  is  proved  that  it  does  not.  In  most 
other  forms  of  contracts  the  consideration  must 
appear  in  the  contract  itself.  Consideration  can 
easily  be  understood  if  we  view  it  as  a  price  paid, 
without  which  the  party  receiving  it  would  not 
have  made  the  contract.  Suppose  A  promises  B 
$500  as  a  present  and  gives  him  a  promissory  note 
for  that  amount.  B  cannot  make  A  pay  him  the 
$500,  because  there  is  no  consideration  for  A's 
promise.  But  suppose  B  had  given  A  his  horse, 
worth  $100,  in  exchange  for  A's  promise  to  pay  the 
$500.  In  that  case  A  can  be  compelled  to  pay  the 
$500,  because  there  is  consideration  and  it  is  not 
necessary  that  the  consideration  equal  the  promise 
in  value.  Frequently  in  business  transactions  of 
all  kinds  we  find  considerations  of  $1  paid,  which 
will  enable  one  to  enforce  agreements  concerning 

195 


196         BANKING    FOR    BEGINNERS 

even  thousands  of  dollars.  A  past  consideration 
or  a  moral  obligation  will  not  support  a  promise 
to  do  something.  Thus,  suppose  A  finds  B's  auto- 
mobile, which  has  been  stolen,  and  returns  it  to  B. 
B  promises  to  pay  him  $100  as  a  reward.  A  can- 
not enforce  this  promise,  because:  (1)  it  rests  on 
a  past  consideration;  (2)  A  was  under  a  legal  duty 
to  return  the  automobile  to  its  owner.  Suppose 
there  had  been  no  legal  obligation  to  return  the 
found  automobile,  but  only  a  moral  obligation. 
The  promise  could  not  be  enforced  in  that  case,  for 
the  law  will  not  concern  itself  with  moral  obliga- 
tions or  ethical  considerations. 

VERBAL  PROMISES.— It  was  also  shown  in 
Chapter  II  that  "a  promise  to  do  something  is  a 
sufficient  consideration  for  another  promise."  One 
party's  promise  is  a  good  consideration  for  a 
promise  by  the  other  party.  We  likev/ise  saw  what 
contracts  must  be  in  writing.  Many  important 
kinds  of  contracts,  however,  may  be  verbal.  The 
chief  difficulty  of  oral  contracts  arises  when  it  is 
endeavored  to  prove  their  existence,  and  what  their 
terms  are.  The  parties  may  actually  have  forgot- 
ten, or  one  party  may  be  fraudulently  trying  to  get 
some  advantage  over  the  other  party.  Much  mis- 
understanding and  dissatisfaction  are  likely  to 
result  from  verbal  contracts,  and  whenever  poss- 
ible contracts  should  be  reduced  to  writing.  Sup- 
pose A  promises  to  pay  B  in  three  years  $500  with 
interest  at  six  per  cent.     The  promise  is  not  in 


BANKING    FOR    BEGINNERS         197 

writing.  If  A  dies  it  will  be  difficult  for  B  to  prove 
that  the  promise  was  ever  made,  unless  there  were 
others  who  heard  it  made.  Or  the  parties  may  dis- 
agree over  the  amount  of  the  principal  or  the 
interest  or  whether  the  interest  was  to  be  simple 
or  compound.  The  mistake  may  be  an  honest  one 
or  one  party  may  be  trying  to  gain  some  advantage 
by  deliberately  lying.  Even  witnesses  may  dis- 
agree— a  man's  memory  is  not  as  reliable  as  a 
memorandum  in  writing  over  his  signature. 

RELATION  OF  AGENT  AND  PRINCIPAL. 
— One  man  may  employ  another  to  mow  his  lawn, 
but  there  are  no  relations  here  that  inevitably  seem 
to  affect  the  rights  of  other  parties.  But  when 
one  man  employs  someone  else  to  represent  him 
in  dealing  with  a  third  person,  the  relation  of 
agency  arises.  It  can  only  arise  from  contract, 
express  or  implied.  The  agent  is  not  subject  to 
the  direct  control  of  the  principal.  A  employs  B 
to  purchase  an  automobile  for  him.  B  does  so. 
A  is  the  "principal"  or  employer;  B  is  the  "agent." 
The  law  of  California  defines  an  agent  to  be  "one 
who  represents  another  called  the  principal  in 
dealings  with  third  persons;  such  representation 
is  called  agency."  Agents  are  of  two  classes:  (1) 
"General"  and  (2)  "Special."  A  general  agent  is 
authorized  to  conduct  all  the  business  of  the  prin- 
cipal, or  at  least  all  the  business  of  a  particular 
kind.  A  special  agent  is  only  authorized  to  do 
one  or  more  specific  acts  for  the  principal.    What- 


198         BANKING    FOR    BEGINNERS 

ever  business  a  person  can  transact  himself  he  may 
transact  through  an  agent.  Of  course,  what  he 
cannot  do  himself  he  cannot  accomplish  through 
anyone  else.  The  act  of  the  agent  is  assumed  to 
be  the  act  of  the  principal. 

HOW  AGENCY  IS  CREATED  AND  TER- 
MINATED.— In  general  any  person  who  can  make 
a  contract  can  appoint  an  agent.  Some  persons 
who  cannot  make  contracts  themselves  may  be 
agents,  at  least  so  far  as  binding  the  principal 
and  a  third  party  is  concerned.  An  agency  may 
be  created  by  an  express  agreement  between  the 
parties  (principal  and  agent).  This  agreement 
may  be  oral  or  written.  If  written  it  may  also  be 
sealed.  An  agency  may  also  be  implied  from  con- 
duct; for  instance,  partners  are  held  to  be  the 
agents  of  each  other;  a  guest  at  a  hotel  could 
assume  that  the  clerk  has  authority  to  take  charge 
of  money  handed  to  him  for  safe-keeping.  Agency 
may  arise  from  relationship;  a  wife  can  bind  her 
husband  to  pay  for  necessaries  which  she  has  pur- 
chased. If  A  allows  B  to  represent  himself  as 
A's  agent,  and  does  not  protest,  he  cannot  later 
deny  that  B  was  his  agent;  that  is,  the  agency  is 
created  by  estoppel.  Suppose  B  acts  as  A's  agent, 
but  without  the  knowledge  of  A.  If,  when  A  learns 
of  it,  he  takes  advantage  of  B's  acts,  he  cannot  then 
deny  that  B  was  his  agent.  He  is  held  to  have  rati- 
fied B's  unauthorized  act.  Since  agency  is  the  result 
of  a  contract  it  can  be  terminated  only  in  the  ways 


BANKING    FOR    BEGINNERS  199 

that  an  ordinary  contract  may  be  terminated ;  that 
is,  by  complete  performance;  by  the  express  terms 
of  the  contract,  which  may  provide  for  its  termina- 
tion; by  mutual  agreement  of  the  parties;  by 
impossibility  of  performance ;  by  operation  of  law ; 
or  by  breach  of  the  contract.  Under  "operation  of 
law"  would  come  the  bankruptcy  of  the  principal, 
which  will  discharge  the  contract;  but  the  bank- 
ruptcy of  the  agent  does  not  necessarily  terminate 
his  agency.  The  death  of  either  party  will  ter- 
minate the  agency. 

LIABILITIES  OR  DUTIES  OF  THE  PRIN- 
CIPAL.— A  principal  is  under  certain  obligations 
to  his  agent  and  to  third  parties.  He  is  under  obli- 
gation to  pay  the  agent  his  compensation.  The 
amount  of  the  compensation  or  salary  may  be 
stated  in  the  contract  or  it  may  be  based  on  the 
reasonable  value  of  the  services  rendered.  Unless 
it  is  otherwise  agreed,  an  agent  will  not  be  entitled 
to  compensation  until  he  performs  what  he  has 
agreed  to  do.  He  is  entitled  to  be  reimbursed  for 
any  money  he  may  have  advanced  for  his  principal. 
A  principal's  liability  to  third  parties  includes  his 
obligation  to  perform  all  contracts  made  by  his 
agent  within  the  scope  of  the  agent's  authority. 
A  bank  cashier  is  an  agent  of  his  bank  and  has 
power  to  draw  checks  or  drafts  upon  the  funds  of 
the  bank ;  to  endorse  and  transfer  negotiable  paper 
(checks,  bills,  notes) ;  to  certify  checks  drawn  by 
depositors;    to  collect  money  due  the  bank;    to 


200         BANKING    FOR    BEGINNERS 
POWER  OF  ATTORNEY 


the   members   of  the   firm   of 

County  of State  of 

have  made,  constituted,  and  appointed,  and  by  these  presents  do  make, 

constitute    and    appoint 

said  firms  and  our  true  and  lawful  Attorney,  for  it  and  us  and  in  its 
and  our  name,  place  and  stead,  to  sign,  endorse,  draw,  accept,  make, 
execute  and  deliver,  all  such  Notes,  Checks,  Bills  of  Exchange,  and 
other  contracts  or  instruments  in  writing,  with  or  without  seal,  and 
such  verbal  contracts  as  he  may  deem  proper,  giving  and  granting  unto 
its  and  our  said  Attorney  full  power  and  authority  to  do  and  perform 
all  and  every  act  and  thing  whatsoever  requisite  and  necessary  to  be 
done  in  and  about  the  premises,  as  fully,  to  all  intents  and  purposes, 
as  we  ourselves,  or  either  of  us,  might  or  could  do  if  personally  pres- 
ent, hereby  ratifying  and  confirming  all  that  its  and  our  said  Attorney 
shall  lawfully  do  or  cause  to  be  done  by  virtue  hereof. 

3n  Wttnf BB  Wl^PrfOf,  We  have  hereunto  set.  .  .  .hand  and  seal 

and  the  signature  and  seal  of  said  firm,  the day  of 

in  the  year  one  thousand  nine  hundred  and 


County  of 


#tat*  at  I  **  it  Kuamn,  That  on  the  day 

/  *^'         of  in  the  year  one  thousand 

'  nine    hundred    and  before    me 

personally   came 

known  to  me  to  be  the  individuals  de- 
scribed in,  and  who  executed  the  foregoing  Power 
of  Attorney  and  who  compose  the  firm  of 

and   acknowledged    the    above    Power  of   Attorney 

to  be   act  and  deed,   and  the   act  and 

deed  of  said  firm. 

3n  SfBttmOntJ  OTl^Prpnf,  I  have  hereunto 
subscribed  my  name  and  affixed  my  official  seal 
the  day  and  year  last  above  written. 


BANKING    FOR    BEGINNERS         201 

borrow  money  for  the  bank  and  to  loan  money. 
Sometimes  when  an  agent  deals  with  a  third  per- 
son he  may  not  tell  the  latter  he  is  acting  for  a 
principal.  An  agent  is  always  liable  in  such  a  case. 
LIABILITIES  OR  DUTIES  OF  THE 
AGENT. — An  agent  also  has  duties  to  his  princi- 
pal and  to  third  parties.  He  must  use  the  utmost 
care  in  protecting  his  principal's  interests.  He 
must  not  make  any  secret  profits  himself  and  any 
contracts  he  may  make  must  be  accounted  for  to 
his  principal.  He  must  strictly  obey  the  lawful 
instructions  that  his  principal  may  give  him,  and 
is  liable  to  the  principal  for  any  loss  to  the  latter 
that  the  agent's  negligence  and  lack  of  care  may 
cause.  He  must  use  reasonable  prudence  in  carry- 
ing out  the  affairs  of  his  principal  that  have  been 
intrusted  to  him.  Generally  speaking,  an  agent 
must  act  in  person  and  cannot  delegate  his 
authority  to  some  one  else.  That  is,  if  A  author- 
izes B  to  act  as  his  agent,  B  cannot  turn  over  to 
C  this  agency,  for  A  has  a  right  to  say  whom  he 
wishes  to  act  as  his  agent.  An  agent  must  also, 
whenever  demanded,  give  complete  reports  to  his 
principal.  An  agent  is  liable  to  third  parties  if 
he  exceeds  his  authority  in  such  a  way  that  his 
principal  is  not  bound,  and  thus  is  liable  for  any 
fraud  committed  by  him  while  on  the  principal's 
business.  Suppose  A  makes  a  contract  with  B,  tell- 
ing B  that  he  is  acting  for  X.  As  a  matter  of  fact 
X  does  not  exist.  Then  A  is  liable  to  B.  If  an  agent 


202         BANKING    FOR    BEGINNERS 

makes  a  contract  with  third  parties  in  such  a  way 
that  his  principal  is  not  bound,  then  the  agent  is 
Uable  himself.  "We,  as  Directors  of  the  A.  B.  Cor- 
poration, promise  to  pay  to  X's  order  five  hundred 
dollars.  C,  D,  E,  Directors  of  the  A.  B.  Corpora- 
tion"; in  this  case  the  A.  B.  Corporation  is  liable, 
for  it  is  the  corporation's  promise.  Suppose  the 
note  had  read  "We  promise  to  pay,  etc.,"  and  had 
been  signed  by  C,  D  and  E;  here  the  corporation 
would  not  be  liable,  but  C,  D  and  E  would  be  liable 
individually.  Suppose  an  agent  does  not  disclose 
the  name  of  his  principal.  When  the  third  party 
finds  out  who  the  principal  is,  then  he  may  hold 
either  the  agent  or  the  principal  (but  not  both). 

POWER  OF  ATTORNEY.— A  power  of  at- 
torney is  a  written  or  printed  paper  by  which  one 
person  gives  authority  to  another  person  to  act 
for  him;  it  must  state  the  extent  of  the  authority 
given  and  specify  just  what  power  the  attorney  has. 
It  must  be  signed  and  acknowledged  before  a  notary 
public  or  other  officer  authorized  by  law  to  take 
acknowledgments.  After  a  power  of  attorney  has 
been  executed  and  delivered,  the  signature  of  the 
second  party  (the  one  to  whom  the  power  of  at- 
torney is  given  and  who  is  called  the  "attorney 
in  fact")  has  just  as  much  force  as  if  the  first  party 
had  signed  himself.  A  power  of  attorney  is  con- 
strued strictly,  and  the  agent  (the  person  to  whom 
it  is  given)  can  exercise  no  other  powers  than  are 
expressly  stated  in  it.     In  cases  where  the  agent 


BANKING    FOR    BEGINNERS         203 

is  authorized  to  make  contracts  which  must  be 
under  seal,  then  the  authority  of  the  agent  (the 
power  of  attorney)  must  also  be  under  seal.  An 
agent  must  have  a  power  of  attorney :  ( 1 )  To  exe- 
cute a  deed  of  conveyance  for  his  principal;  (2) 
to  execute  a  mortgage;  (3)  to  execute  a  lease 
of  lands  for  more  than  three  years ;  (4)  to  transfer 
title  to  or  interest  in  a  ship;  (5)  to  execute  a  bill 
of  sale  under  seal;  (6)  to  execute  a  bond;  (7)  to 
execute  an  enforceable  promise  without  a  sufficient 
consideration  to  support  it;  (8)  any  other  formal 
document.  While  a  power  of  attorney  is  necessary 
in  the  above  cases,  to  make  the  acts  of  the  agent 
binding,  it  may  be  used  in  other  cases.  Powers  of 
attorney  are  often  used  in  the  transfer  of  stock 
certificates.  It  is  incumbent  upon  persons  dealing 
with  "attorneys  in  fact"  to  examine  the  power  of 
attorney  in  order  to  determine  just  what  power 
the  agent  has. 

PARTNERSHIP.— A  partnership  is  a  relation 
growing  out  of  a  contract,  in  which  two  or  more 
persons  agree  to  do  business  as  a  firm.  The  losses 
and  profits  must  be  shared  between  them  (this  is 
usually  the  test  as  to  whether  a  partnership  really 
exists  in  a  given  case).  Partners  have  certain 
relations  to  each  other.  No  person  can  become 
a  member  of  a  partnership  without  the  consent  of 
all  the  members.  Suppose  A,  B  and  C  are  part- 
ners. C  sells  out  his  share  to  X.  X  cannot  become 
a  partner  unless  A  and  B  are  willing.    If  they  will 


204         BANKING    FOR    BEGINNERS 

not  take  him  as  a  partner  (and  this  means  forming 
a  new  partnership)  then  X  can  compel  the  selling 
of  the  partnership's  property  and  obtain  C's  share 
after  the  debts  have  been  paid.  The  same  thing 
would  be  true  if  X  had  inherited  C's  share.  All 
partners  have  an  equal  right  in  the  management 
and  conduct  of  the  firm's  business.  They  cannot 
be  excluded  from  this  right  and  are  entitled  to 
have  the  business  conducted  according  to  the 
terms  of  the  agreement.  Ordinary  differences 
arising  in  the  conduct  of  the  business  can  be  de- 
termined by  a  majority  of  the  partners.  But  the 
nature  of  the  business  cannot  be  changed  unless 
all  the  partners  agree.  A  partner  is  not  entitled 
to  interest  on  the  money  he  has  contributed,  but 
he  is  entitled  to  interest  on  any  advances  made 
beyond  the  amount  he  agreed  to  put  in.  Thus,  A 
agreed  to  subscribe  $5,000.  He  actually  advances 
$8,000.  He  is  entitled  to  interest  on  the  $3,000. 
After  all  debts  of  the  partnership  are  paid  each 
partner  is  entitled  to  share  in  the  profits  according 
to  the  amount  invested,  and  if  the  partnership  is 
dissolved  to  have  the  amount  contributed  or  any 
other  advances  he  has  made  repaid.  Thus,  A,  B 
and  C  put  in,  respectively,  $2,000,  $3,000  and  $5,000 
in  a  partnership.  At  the  end  of  the  first  year,  after 
all  debts  are  paid,  there  is  $12,000  on  hand.  The 
$2,000  profit  will  be  divided  as  follows:  $400  to  A, 
$600  to  B,  and  $1,000  to  C.  Moreover,  no  partner 
can  claim  compensation  beyond  his  share  in  the 


BANKING    FOR    BEGINNERS         205 

profits  unless  all  have  agreed  otherwise.  But  if 
A  and  B  are  partners  and  B  neglects  the  business 
and  as  a  result  A  is  compelled  to  do  all  the  work, 
in  some  jurisdictions  it  has  been  held  that  A  may 
claim  extra  compensation  for  his  services.  If  a 
partner  makes  payments  and  incurs  liabilities  per- 
sonally while  acting  for  the  partnership,  then  the 
others  must  indemnify  him  for  this.  Each  partner 
is  an  agent  of  the  others  in  the  conduct  of  the  firm's 
business,  and  the  partnership  is  bound  by  all  con- 
tracts made  by  a  partner  within  the  scope  of  the 
business. 

POWERS  OF  A  PARTNER.— (1)  He  can 
purchase  any  goods  dealt  in  by  the  firm  or  usually 
employed  in  such  a  business  (but  not  other  goods; 
a  partnership  in  the  hardware  business  would  not 
have  any  implied  power  to  buy  groceries — so  if  one 
member  of  such  a  partnership  purchased,  in  the 
firm  name,  some  groceries,  the  partnership  would 
not  be  bound) ;  (2)  he  can  sell  or  mortgage  any 
personal  property  of  the  firm  (but  he  cannot  sell 
real  estate  belonging  to  the  firm) ;  (3)  he  can 
receive  payment  of  debts  due  the  firm;  (4)  he  can 
give  receipts;  (5)  he  can  engage  agents  and  em- 
ployees for  the  firm;  (6)  he  can  borrow  money 
on  the  firm's  credit;  (7)  he  can  make,  accept  and 
endorse  bills  and  notes  in  the  case  of  a  trading  firm 
(a  firm  that  buys  or  sells)  but  not  in  the  case  of 
a  non-trading  partnership  (such  as  a  hotel  firm 
or  a  law  firm).    A  partner  cannot:    (1)  Assign  the 


206         BANKING    FOR    BEGINNERS 

partnership  property  to  anyone  else  in  trust  for 
a  creditor  or  even  for  all  the  creditors;  (2)  dispose 
of  the  firm's  good  will;  (3)  dispose  of  all  the  part- 
nership's property  at  one  time,  unless  it  consists 
only  of  merchandise;  (4)  bind  the  firm  by  a  con- 
tract of  guaranty  of  his  own  or  anybody  else's 
debt  (unless  this  is  the  business  of  the  firm) ;  (5) 
do  any  act  that  would  make  it  impossible  to  carry 
on  the  partnership's  ordinary  business;  (6)  bind 
the  firm  by  a  deed.  Since  each  partner  is  an  agent 
of  the  others  he  must  not  make  any  secret  profits 
while  acting  within  the  scope  of  the  partnership 
business.  As  each  partner  is  an  agent  of  the  firm 
for  the  purpose  of  the  firm's  business,  his  acts 
apparently  made  in  the  interest  of  the  firm  will 
bind  the  partnership,  unless:  (1)  He  has  no 
authority  to  act;  or  (2)  the  person  with  whom  he 
deals  has  knowledge  of  this  lack  of  authority.  A 
third  person  is  held  to  know  of  this  lack  of  authority 
when:  (1)  He  actually  knows  it;  or  (2)  knows 
other  facts  from  which  an  ordinarily  prudent  per- 
son would  come  to  know  it.  The  relationship  of 
partners  to  third  parties  will  also  be  governed  by 
each  partner's  power  to  make  contracts,  etc.  Each 
partner  is  liable  jointly  and  severally  with  the 
others  for  all  the  debts  of  the  partnership. 

WHAT  ARE  THE  RIGHTS  OF  CREDI- 
TORS AGAINST  A  PARTNERSHIP?— A  part- 
ner is  liable  to  creditors  to  the  extent  of  his  whole 
fortune.     The  creditor's   action   must   be   against 


BANKING    FOR    BEGINNERS         207 

all  the  partners,  but  if  he  recovers  judgment  he  may 
collect  the  entire  amount  out  of  the  individual 
property  of  one  partner,  and  is  not  bound  to  try 
to  collect  it  out  of  the  partnership  property.  Of 
course,  the  partner  whose  property  was  thus  taken 
could  sue  the  others  to  make  them  repay  him.  Sup- 
pose the  creditor  had  proceeded  against  the  part- 
nership property  but  it  was  insufficient  to  pay  his 
claim.  He  could  then  proceed  against  the  indi- 
vidual property  of  the  partners  to  collect  the  bal- 
ance. One  partner  will  be  liable  for  the  whole  debt 
if  the  others  are  insolvent.  (The  points  of  law 
covered  in  this  paragraph  are  not  uniformly  estab- 
lished; there  are  some  authorities  holding  other- 
wise.) 

DISSOLUTION  OF  PARTNERSHIPS.  —  A 
partnership  may  be  dissolved  for  many  reasons 
and  in  many  ways.  The  partners  may  agree  to 
end  the  partnership.  If  the  partnership  was 
created  for  the  performance  of  some  specific  act 
or  acts  it  will  be  terminated  by  performance.  If 
the  partnership  was  to  exist  for  only  a  specified 
period,  it  will  be  terminated  when  that  time  expires. 
Any  partner  may  retire  whenever  he  wishes,  thus 
ending  the  partnership.  Of  course,  since  a  part- 
nership is  a  contractual  relation,  a  partner  thus 
retiring  will  be  liable  for  damages  to  the  other 
partners  if  the  firm  was  to  last  a  specified  period 
and  he  withdraws  before  that  period  has  expired. 
The  death  or  permanent  incapacity  of  one  of  the 


208         BANKING    FOR    BEGINNERS 

partners  will  terminate  a  partnership.  A  change 
in  the  law  may  cause  the  partnership  to  be  dis- 
solved. After  dissolution  no  partner  can  act  for 
the  partnership,  except  to  wind  up  its  affairs  or 
complete  previous  transactions. 

JOINT-STOCK  COMPANIES.— A  joint-stock 
company  resembles  a  large  partnership,  in  which 
the  shares  of  the  partners  are  represented  by  stock, 
just  as  in  a  corporation.  It  is  like  a  partnership 
in  that  each  member  is  liable,  jointly  and  severally, 
for  the  full  debts  of  the  company.  But  unlike  a 
partnership,  the  death  or  retirement  of  one  share- 
holder will  not  dissolve  the  company.  It  is  also 
different  from  a  partnership  in  that  a  shareholder 
is  not  an  agent  of  the  company,  unless  properly 
elected  or  appointed  to  be  such. 

CORPORATIONS.  —  A  corporation  is  a  body 
which  the  law  has  artificially  created.  It  has  rights 
and  duties  entirely  distinct  from  any  or  all  of  the 
persons  who  may  own  shares  in  it.  There  are  special 
rules  for  banking,  insurance  and  public  service 
(street  railway,  etc.)  corporations.  Corporations 
are  formed  by  complying  with  the  laws  of  the  State, 
which  usually  require  the  signing  of  articles  of 
incorporation  by  the  formers  (these  articles  state 
the  name,  purposes,  amount  of  capital  stock,  loca- 
tion of  principal  business  office,  period  of  duration, 
etc.),  and  the  issuance  of  a  certificate  of  incorpora- 
tion (charter)  by  the  secretary  of  state,  after  all 
taxes  and  fees  required  have  been  paid.    Corpora- 


BANKING    FOR    BEGINNERS         209 

tions  have  power;  (1)  To  control  the  name  it  has 
adopted  and  a  right  to  that  name;  (2)  to  sue  and 
be  sued;  (3)  to  acquire,  hold,  use  and  sell  such 
property  as  the  purposes  of  the  corporation  (as 
stated  in  the  articles  of  incorporation)  may  require ; 
(4)  to  make  by-laws  not  inconsistent  with  its  pur- 
poses. It  has  numerous  other  rights  but  the  above 
are  the  most  important. 

CORPORATION  STOCK  AND  DIVI- 
DENDS.— A  corporation's  stock  is  represented 
by  certificates.  These  certificates  are  often  pledged 
as  collateral  for  loans.  Stock  is  either  "preferred" 
or  "common."  The  preference  is  usually  one  as  to 
dividends  but  may  be  merely  as  to  assets  on  dis- 
solution or  in  voting  powers.  Dividends  are  paid 
on  preferred  stock  before  the  common  stockholders 
receive  anything.  The  most  common  way  is  to 
give  the  "preferred  stock"  the  first  claim  upon  earn- 
ings up  to  a  certain  per  cent.  Thus  the  preferred 
stock  may  state  that  it  is  entitled  to  receive  8% 
per  annum  before  the  common  stock  receives  any- 
thing. Usually,  preferred  stock  sells  higher  than 
the  common,  but  if  the  corporation's  earnings  are 
so  big  that  the  common  stock  receives  a  higher 
dividend  than  the  preferred,  then  the  common  stock 
will  quite  likely  sell  at  a  higher  price.  Stock  may 
be  transferred  from  one  person  to  another.  A 
voting  trust  is  an  arrangement  by  which  some  or 
all  of  the  stockholders  transfer  their  shares  to 
trustees,  who  have  stock  certificates  made  out  to 


210         BANKING    FOR   BEGINNERS 

themselves  as  trustees.  The  trustees  thus  have 
the  right  to  vote,  while  the  real  owners  get  what- 
ever dividends  are  declared.  The  directors  may 
declare  dividends,  if  they  have  been  earned,  at  their 

POWER  TO  VOTE  STOCK— PROXY 


Knom  all  Mm  bg  tl}tBt  fr? H^ttta,  That  i, 

do  hereby  constitute  and  appoint  John  Rice,  George 
Laight  and  Harry  M.  See,  or  either  of  them,  Attor- 
ney and  Agent  for  me,  and  in  my  name,  place  and 
stead,  to  attend  and  vote  as  my  proxy  at  the  (state 
whether  annual  or  special  meeting)  meeting  of  the 

Stockholders   of TRUST    COMPANY, 

to  be  held  on  Wednesday,  January  17,  1917,  and  at 
any  and  all  adjournments  thereof,  with  full  power 
and  authority  to  act  and  vote  for  me  in  all  respects 
at  the  said  meeting  and  at  any  and  all  adjournments 
thereof,  for  the  (here  state  purpose  of  meeting), 
and  upon  all  other  business  which  may  properly  be 
brought  before  the  said  meeting,  according  to  the 
number  of  votes  which  I  should  be  entitled  to  vote 
if  then  personally  present. 

3n  MitnrHB  W\)n^af,    I  have  hereunto  set  my 

hand  and  seal  this _ day  of 

,  one  thousand  nine  hun- 
dred and  seventeen. 

[Seal] 

Witness : 


BANKING    FOR    BEGINNERS         211 

own  discretion,  and  will  not  be  interfered  with 
by  the  courts  in  this  respect  unless  they  act  fraudu- 
lently or  oppressively.  After  the  directors  have 
declared  a  dividend  the  corporation  owes  it  as  a 
debt  to  the  stockholder,  who  can  sue  the  corpora- 
tion for  the  amount  due.  The  stockholder  has  the 
right  to  vote  at  the  meetings  of  the  corporation. 
He  can  usually  vote  by  proxy  if  he  desires.  This 
means  authorizing  some  one  else  to  vote  his  stock 
for  him. 

This  document  does  not  have  to  be  acknowledged 
before  a  notary  public,  but  it  should  be  witnessed. 

MANAGEMENT  OF  CORPORATIONS.— 
The  business  affairs  of  the  corporation  are  man- 
aged by  a  board  of  directors,  not  fewer  than  three, 
each  of  whom  must  be  a  stockholder.  They  are 
elected  by  the  stockholders  and  their  terms,  etc., 
are  prescribed  in  the  articles  of  incorporation. 
They  are  the  general  agents  of  the  corporation; 
they  may  issue  and  sell  stock;  declare  dividends; 
appoint  or  elect  officers  to  manage  the  business  of 
the  corporation  and  act  as  its  agents;  make  loans; 
execute  mortgages  on  the  corporation's  property; 
buy  property  needed;  and  in  general  perform  all 
such  duties  as  the  by-laws  and  charter  given  by  the 
State  permit.  This  includes  not  only  those  specifi- 
cally stated  but  those  necessary  to  carry  out  the 
provisions  of  the  by-laws  and  charter.  The  di- 
rectors and  officers  of  a  corporation  cannot  legally 
engage  in  ultra  vires  acts,  that  is,  acts  beyond  the 


212         BANKING    FOR    BEGINNERS 

FORM  FOR  MEETING  OF  DIRECTORS  FOR 
ORGANIZATION  OF  NEW  BOARD 


FORM  FOR  MEETING  OF  DIRECTORS  FOR 
ORGANIZATION  OF  NEW  BOARD 

(City  or  town) (date) 

A  meeting  of  the  newly  elected  Directors  of  the 

Bank  of  

was  called  to  order  by  the  Cashier  immediately  after 
adjournment  of  the  annual  meeting  of  the  stock- 
holders, it  appearing  that 

Messrs 


had  taken  the  prescribed  oaths  of  director,  and  were 
present  at  this  meeting. 

On  motion,  duly  seconded,  Mr. 

was  elected  President  at  a  salary  of  $ 

per  annum. 

On  motion,  duly  seconded,  Mr 

was  elected  Vice-President  at  a  salary  of  $ 

per  annum. 

On  motion,  duly  seconded,  it  was 

RESOLVED,  that  the  Directors  be  paid  $ 

for  each  attendance  at  Board  Meetings  and  $ 

each  for  services  on  committees. 

(Here  record  any  other  business  that  transpired.) 

There  being  no  further  business,  the  meeting  on 
motion  adjourned. 


BANKING    FOR    BEGINNERS        213 

scope  of  the  corporation's  charter  powers.  If  they 
exceed,  or  attempt  to  exceed,  these  powers,  the 
stockholders  or  creditors  may  apply  for  an  injunc- 
tion to  restrain  them.  This  would  be  so,  even  if  the 
majority  of  the  stockholders  consented  to  the  viola- 
tion, for  a  minority  may  always  insist  that  the 
limits  of  the  charter  powers  be  observed.  If  neither 
of  the  parties  to  an  ultra  vires  contract  has  started 
to  perform  his  part  the  courts  will  not  compel  him 
to  do  so.  In  most  courts  it  has  been  held  that  if 
either  party  to  an  ultra  vires  contract  has  done 
his  part  the  other  party  will  be  compelled  to  per- 
form. If  both  parties  have  performed  the  courts 
will  let  the  matter  remain  as  they  find  it.  The 
directors  are  bound  to  exercise  reasonable  care  in 
the  conduct  of  the  corporation's  affairs,  and  are 
liable  for  negligence,  dishonesty,  or  breach  of  trust 
(for  they  are  in  a  position  of  trust  in  their  relation 
to  the  stockholders). 

CORPORATION  STOCKHOLDERS.— Unlike 
partnerships  and  joint-stock  companies,  the  mem- 
bers of  a  corporation  (its  stockholders)  are  not 
liable  individually  for  the  debts  of  the  firm;  but 
they  are  liable  to  the  corporation  for  any  unpaid 
part  of  their  subscriptions.  Thus,  A  agrees  to  buy 
ten  $100  shares,  but  pays  only  $400.  The  corpora- 
tion can  compel  him  to  pay  the  other  $600.  Or  the 
creditors  might  compel  him  to  pay  the  $600,  for 
it  is  a  sort  of  fraud  on  the  creditors  to  advertise 
capital  stock  of  $100  a  share,  presumably  paid  in 


214         BANKING    FOR    BEGINNERS 

cash  or  in  property  of  equivalent  value,  and  then 
to  find  that  only  $40  a  share  has  been  paid.  Statutes 
may  make  stockholders  liable  for  an  additional 
amount,  over  and  above  the  face  value  of  their 
stock.    A,  above,  might,  if  the  statutes  so  provided, 

FORM  OF  MINUTES   FOR  DIRECTORS'  MEETING 


FORM  OF  MINUTES  FOR  DIRECTORS'  MEETING 


(City  or  town)- ,  (date) 

The  regular  meeting  of  the  Board  of  Directors 

of  the  - _„ Bank  of 

was  held  at  their  banking  house 

at o'clock _ (date)    with   the 

following  members  present,  viz. : 

Messrs 


Minutes  of  meeting  of were 

read  and  on  motion  approved. 

A  statement  of  the  bank  at  the  close  of  business 
was  submitted  to  the  directors. 

All  loans  and  discounts  from (date) 

to (date)  inclusive,  were  read  to  the 

directors  (or  were  submitted  to  the  directors)  and 
on  motion  duly  seconded  were  approved. 

(Here  record  any  other  business  that  transpired.) 

No  further  business  being  presented,  the  meeting 
on  motion  adjourned. 


BANKING    FOR   BEGINNERS         215 

have  to  pay  another  $100  on  each  share  of  stock, 
if  the  corporation  property  is  not  sufficient  to  pay 
the  debts  of  the  corporation.  This  is  usually  the 
case  in  a  bank  and  is  known  as  the  "stockholder's 
double  liability." 

HOW  CORPORATIONS  ARE  DISSOLVED. 
— A  corporation  is  dissolved  by  the  expiration  of 
the  time  for  which  it  was  chartered.  It  may  be  dis- 
solved by  a  decree  of  the  court  for  various  causes, 
including  the  following:  Non-use  of  its  franchise; 
misuse  of  its  franchise;  failure  to  perform  some 
duty  it  should  have  done  before  it  received  its 
charter,  such  as  a  failure  to  file  its  articles  of  in- 
corporation; non-performance  of  some  subsequent 
duty,  such  as  rendering  reports  to  the  secretary 
of  state  when  required ;  violation  of  some  law,  such 
as  the  anti-trust  law;  failure  to  pay  taxes;  or 
insolvency.  When  a  corporation  becomes  insol- 
vent the  court  may,  if  the  directors,  bondholders 
or  general  creditors  request  it,  appoint  a  receiver, 
who  is  an  officer  of  the  court,  and  who  takes  entire 
charge  of  the  corporation's  property  and  business 
until  it  can  be  dissolved  or  reorganized.  After  all 
the  debts  and  claims  have  been  paid,  if  any  assets 
remain  they  are  divided  among  the  stockholders 
in  proportion  to  the  amount  of  stock  they  own. 

BILLS  OF  SALE.— A  bill  of  sale  is  a  paper 
which  conveys  an  interest  or  right  in  personal 
property  from  one  party  to  another.  No  special 
form  is  necessary;   the  only  thing  necessary  is  to 


216         BANKING    FOR    BEGINNERS 

show  that  one  party  has  intended  to  transfer  his 
property  to  the  other  party. 

SHORT  FORM  OF  BILL  OF  SALE 


Minneapolis,  Minn.,  June  14,  1916. 
I  have  this  day  sold  to  James  Allen,  one  Ford  au- 
tomobile, one  Indian  motorcycle,  and  one  Winton 
automobile. 

GEORGE  STEWART. 


The  above  form  is  very  brief,  but  answers  every 
purpose  and  is  binding.  The  usual  (but  more  for- 
mal) form  of  a  bill  of  sale  is  as  follows : 

ORDINARY  FORM  OF  BILL  OF  SALE 


Kmm  all  Mtn  bg  t\\tBt  f  r? srnta.  That  i, 

George  Stewart  of  Minneapolis,  County  of  Henne- 
pin and  State  of  Minnesota,  in  consideration  of 
Three  Thousand  Dollars,  to  me  paid  by  James  Allen, 
of  the  same  place,  have  bargained  and  sold  to  James 
Allen,  the  following  goods  and  chattels,  to  wit:  one 
Ford  automobile,  one  Indian  motorcycle,  and  one 
Winton  automobile. 

3n  WitntBB  Wl^Btsof,  I  have  hereunto  set  my  hand 
and  seal,  this  14th  day  of  June,  A.  D.  1916. 

Signed,  sealed 
and  delivered 
in    presence    of  [Seal] 


BANKING    FOR    BEGINNERS         217 

LEASES. — Leases  are  contracts  giving  the  pos- 
session of  real  estate  to  one  party,  but  keeping 
the  ownership  in  the  original  owner.  It  is  really 
a  contract  whereby  one  party  becomes  the  tenant 
and  the  other  the  landlord.  Thus,  A  wishes  a  cer- 
tain lot  of  ground  for  a  factory  site,  but  does  not 
wish  to  buy  it.  So  he  goes  to  the  owner,  B,  and 
they  agree  that  for  a  rent  of  $5,000  a  year  A  shall 
have  the  use  of  the  land  for  ten  years — this  con- 
tract is  called  a  lease ;  the  owner  is  called  the  land- 
lord or  "lessor,"  while  the  person  holding  the  land 
is  the  tenant  or  "lessee."  The  consideration  in  such 
a  contract  is  known  as  rent,  and  the  valuable  right 
to  use  the  property  is  called  the  "leasehold."  No 
particular  form  is  required  to  create  a  lease,  which 
may  be  oral  or  written.  The  agreement  may  be 
either  expressly  stated  or  implied  from  the  conduct 
of  the  parties.  By  the  Statute  of  Frauds  all  leases 
for  more  than  a  specified  number  of  years  must  be 
written.  A  seal  is  not  essential  to  the  validity  of 
a  written  lease,  even  if  the  lease  is  required  to  be 
in  writing.  Unless  it  is  specifically  stated  other- 
wise, either  the  landlord  or  tenant  may  assign  his 
interest  in  the  lease  without  the  consent  of  the 
other.  The  tenant  may  sublet  to  a  new  tenant; 
thus,  A  rents  a  farm  from  B,  and  rents  it  to  C 
for  a  period  of  years  less  than  the  lease  runs.  A's 
lease  is  for  ten  years.  If  he  assigns  the  lease  to 
C,  the  latter  gets  the  farm  for  the  entire  period 
(or  unexpired  part).     A  would  still  be  liable  for 


218         BANKING    FOR   BEGINNERS 

the  rent  and  any  other  agreements  he  may  have 
made  with  the  landlord.  If  he  had  rented  the  farm 
for  seven  years  to  C  (less  than  the  full  term,  or 
less  than  the  unexpired  portion)  he  would  be  sub- 
letting his  lease.  A  lease  may  be  terminated  by: 
(1)  Mutual  agreement;  (2)  some  other  act  of  both 
parties;  (3)  default  or  breach  of  either  party;  (4) 
by  its  terms  (such  as  the  expiration  of  the  term 
or  the  occurrence  of  a  stipulated  event;  (5)  de- 
struction of  the  subject-matter;  (6)  by  operation 
of  law;  (7)  proof  that  the  lease  was  induced  by 
mistake,  fraud  or  duress  (it  is  not  void,  but  only 
voidable  in  such  a  case) ;  (8)  the  eviction  of  either 
party  by  a  superior  title  (thus,  if  A  rented  property 
to  B  that  really  belonged  to  C,  the  lease  would 
be  terminated  when  C  proved  his  title). 

MORTGAGES.— A  mortgage  may  be  defined 
as  an  estate  created  by  a  conveyance,  absolute  in 
form,  but  intended  to  secure  the  performance  of 
some  act,  such  as  the  payment  of  money  or  the  like, 
by  the  grantor  or  some  other  person,  and  to  be- 
come void  if  the  act  is  performed  agreeably  to  the 
terms  prescribed  at  the  time  of  making  such  con- 
veyance. Thus,  A  borrows  $5,000  from  B,  giving 
B  his  promissory  note.  For  B's  security  he  also 
gives  B  a  mortgage  on  a  piece  of  property  he  (A) 
owns.  This  mortgage  states  that  if  A  does  not 
pay  the  promissory  note,  then,  after  fulfilling  cer- 
tain formalities,  B  can  possess  himself  of  the  prop- 
erty which  is  described  in  the  mortgage.    Certain 


BANKING    FOR    BEGINNERS         219 

property  is  secured  to  the  lender  in  case  the  bor- 
rower fails  to  pay.  The  mortgage  must  be  signed, 
sealed,  witnessed,  acknowledged  (statement  by  the 
proper  officer,  such  as  a  justice  of  the  peace,  notary 
public,  or  other  officer  empowered  to  take  acknowl- 
edgments that  the  maker  has  appeared  before  him 
and  acknowledged  the  instrument  to  be  his  wilful 
and  intended  act,  or  words  to  that  effect,  the  exact 
language  used  differing  in  the  various  States),  de- 
livered by  the  borrower  (the  "mortgagor")  to  the 
lender  (the  "mortgagee"),  and  accepted  by  the 
lender.  It  should  also  be  recorded  (that  is,  placed 
on  record  in  what  is  called  the  Registry  of  Deeds 
Office  at  the  county  seat)  in  order  to  prevent  a 
dishonest  borrower  from  giving  another  mortgage 
on  the  same  property,  which  might  be  recorded 
ahead  of  the  first  one  given  and  thus  have  prior 
rights.  No  particular  form  is  required  for  the 
defeasance  clause.  Any  deed  which  shows  by  its 
form  that  it  was  issued  to  secure  the  payment  of 
a  debt  will  be  held  to  be  a  mortgage,  and,  in  some 
jurisdictions,  oral  testimony  will  be  admitted  to 
show  that  deeds  are  not  absolute  conveyances 
but  merely  secure  the  payment  of  money.  Thus, 
in  some  States,  the  defeasance  clause  could  be 
proved  to  exist  by  oral  evidence,  even  though  the 
rest  of  the  deed  is  all  in  writing.  In  some  States 
the  lender's  interest  can  be  transferred  by  assign- 
ment ;  in  other  States  his  interest  can  only  be  trans- 
ferred by  deed.    Second  mortgages  and  other  sub- 


220         BANKING    FOR    BEGINNERS 

sequent  mortgages  may  be  placed  on  the  same  piece 
of  property.  Suppose  A  issues  a  mortgage  to  B 
and  then  another  to  C  on  the  same  piece  of  land. 
He  fails  to  pay  C,  who  may  foreclose  (take  steps 
to  have  the  property  sold  to  pay  the  debt  due  him). 
But  B's  claim  would  have  to  be  satisfied  first.  If 
a  borrower  is  married  both  he  and  his  wife  must 
sign  the  mortgage.  Mortgages  are  often  given  to 
banks  to  secure  loans  made.  There  is  a  clause 
inserted  in  some  mortgages  which  gives  the  lender 
the  right  to  sell  the  property  securing  the  debt, 
if  the  debt  is  not  paid  when  due.  This  saves  the 
lender  the  trouble  of  court  proceedings  to  prove 
his  right  to  sell  the  property. 

DEEDS. — A  deed  is  a  document  used  to  transfer 
the  title  of  real  estate  from  one  person  (the 
"grantor")  to  another  (the  "grantee").  The  es- 
sentials of  a  deed  have  already  been  mentioned. 
They  are  the  signature  and  seal  of  the  person 
giving  the  deed;  its  delivery  to  the  grantee  (the 
person  to  whom  the  deed  is  given) ;  its  acceptance 
by  the  grantee.  The  deed  does  not  have  to  be  dated, 
and  unless  required  by  statute  it  does  not  have 
to  be  witnessed  (signed  by  a  disinterested  person 
who  saw  it  executed).  Since  many  States  require 
by  statute  that  a  deed  be  witnessed,  it  is  a  safe 
procedure  to  have  it  done.  As  between  the  parties 
themselves  acknowledgment  is  not  necessary;  but 
it  is  usually  required  by  statute  before  the  deed 
may  be  recorded.     The  wife  of  a  married  man 


BANKING    FOR    BEGINNERS         221 

must  sign  the  deed.  In  a  "quit-claim  deed"  the 
person  giving  it  does  not  hold  himself  responsible 
for  any  defects  in  the  title  of  the  property;  that  is, 
he  only  transfers  the  rights  he  has  in  it  himself. 
In  a  "warranty  deed"  the  person  giving  the  deed 
guarantees  that  there  are  no  defects  in  the  title 
to  the  property,  and  should  any  defect  later  be 
discovered  the  acceptor  of  the  deed  can  recover 
from  the  grantor.  If  there  is  a  mortgage  on  the 
land  when  the  deed  is  made  the  purchaser  is  bound 
to  recognize  the  mortgage  as  a  valid  charge  against 
the  land.  That  is,  A  gives  a  mortgage  on  a  piece 
of  land  worth  $5,000  to  B,  to  secure  a  $2,000  debt. 
A  then  sells  the  land  to  C.  A  fails  to  pay  his 
debt  to  B,  who  forecloses.  The  property  is  sold 
for  $5,000,  and  C  would  be  entitled  to  the  $3,000 
remaining  after  B's  claim  is  satisfied.  If  C  sold 
the  property  to  D,  D  would  then  occupy  the  posi- 
tion of  C. 

GUARANTY  AND  SURETYSHIP.— A  con- 
tract of  suretyship  is  an  agreement  in  which  one 
person  agrees  to  answer  for  the  debt,  default,  or 
miscarriage  of  another.  A  contract  of  guaranty  is 
a  promise  to  pay  such  debt,  etc.,  if  the  party  first 
liable  to  pay  or  perform  fails  to  do  so.  Under  the 
contract  of  guaranty  the  guarantee  (the  person  to 
whom  it  is  given)  must  try  to  get  the  principal 
to  pay  or  perform  and  use  reasonable  diligence 
to  get  him  to  do  so;  in  a  contract  of  suretyship 
the  surety   (the  person  making  the  contract)   is 


222         BANKING    FOR   BEGINNERS 

liable  absolutely  if  the  principal  does  not  pay  or 
perform,  and  the  creditor  does  not  have  to  make 
any  demand  of  the  principal,  but  can  at  once  pro- 
ceed against  the  surety.  But  in  many  of  their 
features  both  guaranty  and  suretyship  contracts 
are  alike.  The  offer  to  become  a  surety  or  guar- 
antor must  be  accepted;  acting  on  the  offer  is 
usually  considered  a  sufficient  acceptance.  It  must 
be  in  writing.  In  general,  all  the  elements  required 
in  other  contracts  must  be  present.  No  particular 
form  is  required.  The  person  to  whom  the  contract 
is  given  must  disclose  all  material  facts  within  his 
knowledge  that  might  affect  the  risk  that  is  taken 
by  the  guarantor  or  surety.  If  the  principal  de- 
faults no  notice  need  be  given  to  a  surety  to  render 
him  liable;  but  a  guarantor  must  be  given  notice: 

(1)  When  the  contract  states  that  it  is  to  be  given; 

(2)  when  he  would  be  damaged  if  not  given  notice; 

(3)  if  the  amount  for  which  he  is  bound  is  indefi- 
nite; (4)  if  the  guaranty  is  conditional.  If  the 
guarantor  or  surety  pays  the  debt  he  has  a  right 
to  any  claims  the  creditor  may  have;  thus,  if  the 
creditor  had  the  principal's  promissory  note  or  a 
mortgage  he  would  be  required  to  deliver  such 
instruments  to  the  person  who  has  paid  the  debt. 
This  is  termed  the  right  of  subrogation.  If  there 
are  two  or  more  joint  guarantors  or  sureties  and 
one  pays  the  entire  debt  he  can  make  the  others 
pay  their  share.  This  is  the  right  of  contribution. 
Who  pays  the  debt  is  entitled  to  reimbursement. 


BANKING    FOR    BEGINNERS         223 

FIDELITY  BONDS.  — Persons  holding  posi- 
tions of  trust  or  responsibility  are  frequently  re- 
quired to  give  a  bond  (usually  executed  by  a  per- 
son or  persons  financially  responsible  or  by  a  com- 
pany making  a  business  of  fidelity  insurance).  A 
bond  of  this  kind  is  a  contract  whereby  the  insurer, 
for  a  valuable  consideration,  agrees,  subject  to  cer- 
tain conditions,  to  indemnify  the  insured  (the 
employer)  against  loss  consequent  upon  the  dis- 
honesty or  default  of  a  designated  employee.  A 
person  with  good  habits  and  good  record  can 
usually  obtain,  without  much  difficulty,  from  a 
surety  company,  a  bond  of  five  or  ten  thousand 
dollars  by  the  payment  of  a  small  annual  sum. 

INSURANCE  POLICIES..— Insurance  is  a 
system  of  distributing  the  losses  of  a  few  persons 
among  a  large  number  of  persons.  Thus,  5,000 
persons  might  take  out  insurance  policies,  each 
paying  $100  a  year,  making  a  total  income  of  $500,- 
000.  If  100  persons  die  (assuming  it  is  life  insur- 
ance) and  each  has  a  policy  of  $5,000,  the  $500,000 
will  be  consumed,  and  the  loss  of  100  have  been 
distributed  among  50  times  that  number.  Actually, 
of  course,  the  insurance  company  will  have  some- 
thing left,  if  their  risk  tables  have  been  carefully 
prepared,  and  if  no  extraordinary  disaster,  such  as 
a  severe  earthquake  or  famine,  has  occurred.  Al- 
most every  conceivable  risk  may  be  insured:  Life, 
marine,  fire — these  are  the  more  common;  but 
there  are  companies  that  insure  against  tornadoes, 


224         BANKING    FOR    BEGINNERS 

steam-boiler  explosion,  plate  glass,  burglaries,  in- 
juries, automobile  theft  or  lawsuits,  defaults  or 
embezzlements,  etc.  The  insurance  policy  is  a  con- 
tract, and  the  premium  paid  is  the  consideration. 
Lawful  contracts  of  insurance  cannot  be  made  un- 
less the  person  paying  the  premium  has  an  insurable 
interest  in  the  person  or  thing  insured ;  thus,  a  base- 
ball club  may  insure  the  lives  of  its  players,  but, 
probably,  would  not  be  allowed  to  insure  the  life  of 
an  opera  singer.  All  the  above  kinds  of  insurance 
are  subdivided  into  many  classes;  for  instance,  life 
insurance  may  be  endowment,  straight  life,  or  term. 
Insurance  policies  having  a  "surrender  value"  may 
be  pledged,  and  such  assignment  duly  recorded  on 
the  books  of  the  insurance  company,  as  collateral 
for  a  loan,  if  they  are  properly  assigned  to  the 
lender.  By  "surrender  value"  is  meant  the  sum  the 
company  agrees  to  pay  to  the  holder  of  the  policy 
when  he  surrenders  it  (there  is  no  such  value  un- 
less the  policy  distinctly  provides  for  it).  The  sum 
that  will  be  paid  is  based  on  the  policy  reserve  and 
is  less  than  the  amount  paid  in  as  premiums.  The 
person  obtaining  the  policy  must  exercise  entire 
good  faith,  and  not  conceal  any  material  facts.  If 
the  warranties  in  a  policy  are  broken  the  policy 
may  be  avoided  if  the  other  party  wishes. 


CHAPTER  IX 


Bank  Departmentization 

DUTIES  AND  RESPONSIBILITIES.— Sub- 
ject to  governmental  authority — National  or  State, 
according  to  their  respective  charters — the  man- 
agement of  any  bank  is  vested  in  its  Board  of  Di- 
rectors. Such  directors  are  elected  by  the  stock- 
holders. The  directors  elect  the  officers,  a  presi- 
dent, a  vice-president,  cashier  and  assistant  cashier, 
v^^ho  are  the  executive  heads  of  the  institution 
and  are  charged  with  the  duty  of  administering 
its  affairs.  The  number  of  vice-presidents  and 
assistant  cashiers  may  depend  upon  the  size  of  the 
bank.  The  directors  may  also  appoint  any  com- 
mittees— such  as  a  discount  committee  and  an  ex- 
amination committee — that  the  business  of  the 
bank  may  seem  to  require.  According  to  the  char- 
acter of  their  duties  and  responsibilities,  bank 
officers  and  employees  may  be  classified  as  (1)  ex- 
ecutives, (2)  tellers,  (3)  bookkeepers.  Whenever 
it  becomes  necessary,  on  acount  of  volume  of  busi- 
ness, to  divide  the  work  in  a  bank  into  divisions, 
each  employing  a  group  of  clerks,  such  divisions  are 
organized  into  departments  having  a  department 
head,  who  is  usually  a  teller,  a  head  bookkeeper,  or 
perhaps  a  junior  officer.  In  the  very  large  banks 
the  executive  staff  is  itself  organized  into  groups, 
and  there  may  be  a  vice-president  and  one  or  two 

225 


226         BANKING    FOR    BEGINNERS 

assistant  cashiers  in  charge  of  each  important  de- 
partment. The  work  of  a  department  in  a  large 
bank  is  nothing  more  nor  less  than  the  work  of 
a  single  man  in  a  small  bank  apportioned  among 
several  men.  The  departments  into  which  a  sizable 
bank  is  ordinarily  divided  are  as  follows: 

(1)  Receiving  Teller's  Department  (Teller) — 
Receives  deposits.  Distributes  checks  to  book- 
keepers and  other  departments.  Prepares  ex- 
changes for  clearing  house.  Turns  cash  over  to 
the  paying  teller  at  end  of  day. 

(2)  Transit  Department  (Teller — ^This  is  a 
subdivision  of  the  receiving  teller's  department  and 
may  be  known  by  other  terms,  such  as  corre- 
spondence, foreign  check,  miscellaneous  check  or 
country  check  department.  Assorts  checks  pay- 
able out  of  town,  endorses  them  and  lists  them  on 
letters  addressed  to  other  banks.  Gives  totals  of 
outgoing  or  remittance  letters  to  general  ledger 
bookkeeper  at  end  of  day. 

(3)  Paying  Teller's  Department  (Teller)  — 
Pays  or  certifies  checks.  In  charge  of  the  signa- 
ture book  or  cards  bearing  the  authorized  signa- 
tures of  all  depositors.  Ships  currency.  In  charge 
of  the  vault  cash. 

(4)  Note  Teller's  Department  (Teller)— Col- 
lects notes  and  drafts  due  at  the  bank  or  elsewhere 
in  the  city.  Usually  in  charge  of  the  runners  or 
messenger  department,  which  is  a  subdivision. 

(5)  Collection  Department   (Teller) — Collects 


BANKING    FOR   BEGINNERS        227 

notes,  drafts  and  other  "time"  items  when  payable 
out  of  town.  Credits  accounts  of  depositors  when 
collections  are  advised  paid. 

(6)  Loan  or  Discount  Department  (Execu- 
tive)— Receives  notes  submitted  for  discount  or 
makes  loans.  Figures  discount  and  interest.  Has 
charge  of  collateral  securing  loans. 

(7)  Credit  Department  (Executive) — Secures 
and  collects  information  relating  to  borrowers. 
Checks  statements  submitted  by  them.  In  charge 
of  credit  files,  which  contain  information  as  to  the 
reliability,  business  habits  and  financial  strength 
of  borrowers. 

(8)  Analysis  or  Statistical  Department  (Ex- 
ecutive)— Usually  found  in  city  banks.  Analyzes 
the  accounts  of  depositors  to  determine  which  are 
profitable  and  which  are  losing  accounts.  Makes 
monthly  reports  to  officers.  In  charge  of  statistics 
relating  to  the  bank's  accounts  and  matters  in 
which  the  bank  is  particularly  interested. 

(9)  General  Ledger  Department  (Bookkeepers) 
— Keeps  the  general  or  control  accounts  of  the 
bank.    Makes  up  the  bank's  statement  of  condition. 

(10)  Country  Bank  Account  Department 
(Bookkeepers) — Confined  to  city  banks.  Keeps 
the  accounts  of  other  banks. 

(11)  Individual  Ledger  Department  (Book- 
keepers)— Keeps  the  records  of  the  balances  of 
individual  depositors.  May  be  subdivided  as  to 
kind  of  accounts  (savings,  dealers),  in  addition  to 


228         BANKING    FOR    BEGINNERS 

ordinary  alphabetical  division.  May  balance  pass- 
books or  there  may  be  a  separate  department  for 
this  purpose  using  the  statement  system.  Figures 
interest  on  accounts. 

(12)  Auditor's  Department  (Executive) — Re- 
sponsible for  the  settlement  of  the  various  depart- 
ments. Reconciles  the  accounts  with  other  banks. 
Certifies  interest  calculations. 

In  addition  to  these  departments,  there  are  others 
to  be  found  either  in  very  large  banks  or  even  in 
small  banks  operating  special  features.  Among 
the  first  might  be  noted  the  coupon  department, 
exchange  department,  purchasing  department,  fil- 
ing department,  interest  department,  nev^  business 
department,  etc.,  all  of  which  terms  are  self- 
explanatory.  Among  special  departments  may  be 
mentioned  the  bond  department,  safety  deposit 
department,  special  deposit  department  (securities 
and  valuable  stores  with  the  bank,  but  not  placed 
in  private  boxes.  In  trust  companies  there  is  the 
trust  department,  which  may  have  a  complete  inde- 
pendent organization  of  its  own,  with  officers, 
bookkeepers  and  other  clerks.  This  department 
has  charge  of  the  trust  accounts. 

RECEIVING  TELLER'S  DEPARTMENT.— 
A  bank  teller  is  a  senior  clerk  who  deals  with  the 
bank's  customers  —  chiefly  depositors  —  in  daily 
transactions  across  the  counter.  In  very  small 
banks  one  man  will  act  both  as  receiving  teller 
and  paying  teller,  as  well  as  note  teller  and  coUec- 


BANKING    FOR    BEGINNERS         229 

tion  teller;  he  is  the  teller,  and  he  may  be  an 
official  as  well.  In  many  large  banks,  particularly 
in  the  West,  an  arbitrary  alphabetical  division  is 
made  on  the  accounts  of  the  bank  and  each  group 
is  treated  as  a  separate  unit.  Under  this  plan,  it 
is  as  if  there  were  several  small  banks  operating 
under  one  roof.  Each  teller  acts  as  both  paying 
and  receiving  teller  for  his  own  group,  to  which 
bookkeepers  are  also  assigned.  This  plan  has  sev- 
eral advantages.  The  depositors  are  not  often 
held  up  in  a  single  long  line  on  busy  days ;  the  teller 
is  not  put  to  the  strain  of  knowing  the  faces  and 
signatures  of  all  the  depositors;  the  money  can 
be  handled  more  easily,  and  if  differences  should 
occur  they  are  confined  within  limits.  Whether 
the  bank  employs  a  separate  receiving  teller  or  not, 
there  are  certain  duties  and  responsibilities  peculiar 
to  the  position.  The  principal  business  of  the  re- 
ceiving teller  is  to  receive  deposits.  Responsibility 
of  no  mean  order  rests  upon  the  teller,  because  he 
acts  as  the  agent  of  the  bank  in  the  relation  estab- 
lished between  the  depositor  and  the  institution. 
He  must  be  on  his  guard  at  all  times.  His  first  care 
is  to  assure  himself  that  the  deposit  is  intended  for 
his  bank.  Many  people  have  two  or  more  bank 
accounts  and  sometimes  confuse  the  pass-books. 
The  amount  of  deposit  is  entered  in  the  pass-book 
as  a  receipt.  In  a  savings  bank  the  pass-book  is 
more  than  a  receipt — it  is  a  voucher  or  evidence 
of  contract  between  the  bank  and  the  depositor. 


230         BANKING    FOR    BEGINNERS 

If  the  bank  is  one  that  deals  with  a  large  num- 
ber of  depositors  who  make  deposits  of  any  size 
or  quantity  of  checks,  the  teller  will  merely  satisfy 
himself  that  the  checks  are  endorsed  by  the  bank's 
customer,  enter  the  amount  in  the  pass-book  and 
examine  or  prove  the  ticket  later.  This  prevents 
a  long  line  of  depositors  from  becoming  impatient 
of  delay.  If  errors  are  found  they  are  reported  by 
telephone,  and  since  the  bank  will  have  been  care- 
ful in  the  first  place  as  to  whom  it  accepts  as  de- 
positors, there  is  but  slight  risk  that  an  error  may 
not  be  satisfactorily  adjusted  at  the  end  of  the  day, 
without  loss  to  the  bank.  But  whether  it  is  done 
first  or  last,  by  the  teller  himself  or  by  his  assist- 
ants, each  deposit  is  subjected  to  the  same  process 
of  proving.  The  cash  is  counted  and  care  taken 
that  there  are  no  counterfeit  bills  or  coins  included. 
The  checks  are  examined  to  see  that  they  are  prop- 
erly listed  and  endorsed.  In  cities  where  the  banks 
charge  their  customers  exchange  on  out-of-town 
checks,  the  receiving  teller  sees  to  it  that  proper 
amount  of  exchange  is  deducted.  As  for  checks 
on  his  own  bank  that  may  be  deposited,  the  receiv- 
ing teller  is  governed  by  the  same  rules  that  apply 
to  the  paying  teller;  that  is,  he  must  know  the  sig- 
nature and  also  be  certain  that  the  check  is  "good." 
Finally,  he  proves  or  tests  the  addition  of  the  ticket. 
The  total  is  listed  on  his  blotter  or  scratcher  and 
the  ticket  is  then  given  to  the  bookkeeper. 

The  various  items  that  make  up  the  deposit  are 


BANKING    FOR    BEGINNERS  231 

then  ready  for  distribution.  The  checks  on  the 
bank  itself  go  to  the  bookkeepers;  checks  on  other 
banks  in  the  same  town  go  either  to  the  clerks  mak- 
ing up  the  exchanges  for  the  clearing  house  or  to 
the  runners'  or  messengers'  department  for  presen- 
tation. 

TRANSIT  DEPARTMENT.  —  Out-of-town 
checks  go  to  the  "transit  department,"  where  they 
are  assorted  as  to  place  payable  and  forwarded  for 
collection  and  returns.  If  the  bank  is  small,  the 
receiving  teller  may  handle  all  these  various  checks 
in  his  own  department,  but  ordinarily  they  will  be 
distributed  to  other  departments  which  are  really 
subdivisions  of  the  receiving  teller's  department. 
The  most  important  of  these  departments  in  point 
of  size  and  responsibility  is  the  transit  department. 
Let  us  consider  such  a  department  in  a  city  bank. 
It  so  happens  that  out-of-town  or  "country  checks" 
can  be  handled  and  collected  more  economically 
in  quantities,  hence  country  banks  and  many  city 
trust  and  savings  institutions  send  these  items  to 
a  city  commercial  bank  which  may  make  a  specialty 
of  collecting  them.  The  receiving  teller,  theoreti- 
cally at  least,  will  receive  these  items  through  the 
mail,  although  when  so  deposited  they  actually  do 
not  leave  the  hands  of  the  transit  clerks  who  open 
and  prove  the  incoming  remittances  or  deposits. 
The  teller  adds  the  figures  of  the  mail  deposits  to 
those  of  counter  or  "window"  deposits.  The  transit 
clerks  assort  the  checks   geographically,   placing 


232 


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BANKING    FOR    BEGINNERS         233 

together  checks  that  are  payable  in  the  same  part 
of  the  State  or  country.  They  are  then  endorsed 
with  the  bank's  stamp  and  Usted  on  letters  ad- 
dressed to  the  bank's  correspondents.  At  the  end 
of  the  day  the  totals  of  the  outgoing  letters  must 
equal  the  total  of  the  checks  which  are  charged  to 
the  transit  depatrment  by  the  receiving  teller.  The 
bookkeeper  charges  the  total  of  each  individual 
outgoing  letter  to  the  bank  to  whom  sent,  and  the 
grand  total  increases  the  general  ledger  item  "due 
from  banks"  by  that  amount. 

RECEIVING  TELLER'S  SETTLEMENT.— 
The  receiving  teller's  settlement  is  quite  simple. 
He  begins  the  day  without  any  funds.  As  deposits 
come  in  he  lists  them  as  to  totals  on  a  scratcher, 
writing  the  name  of  the  depositor  opposite  the 
amount.  At  the  end  of  the  day  the  totals  of  the 
checks  he  has  received  and  charged  to  the  different 
departments  of  the  bank  according  to  place  of  pay 
ment,  plus  the  cash  he  holds,  must  equal  the  total 
deposits  for  that  day.  Settlement  being  made,  he 
then  turns  his  cash  over  to  the  paying  teller,  who 
usually  does  not  count  it  until  the  next  morning. 
In  many  banks  the  receiving  teller  acts  as  the 
"clearing  house"  for  the  other  departments.  For 
instance,  checks  on  other  institutions  will  be  cashed 
by  the  paying  teller,  or  given  to  the  loan  clerk  for 
payment  of  notes,  or  paid  to  the  loan  clerk  for 
loans,  or  the  bank's  draft  on  another  city  may  be 
bought  with  a  personal  check.     All  these  depart- 


234         BANKING    FOR    BEGINNERS 

ments  may  give  over  such  receipts  to  the  receiving 
teller,  who  adds  the  totals  to  his  individual  deposits 
in  making  his  settlement.  Charge  and  credit  tick- 
ets would  be  handled  similarly.  The  student  should 
keep  it  clear  that  such  work  is  incidental  to  the 
business,  and  it  does  not  follow  that  because  it  may 
be  the  note  teller,  paying  teller  or  some  other  clerk 
who  does  this  internal  accounting  for  various  kinds 
of  receipts,  that  his  bank  is  "different." 

"BATCH"  OR  "BLOCK"  SYSTEM.— The  gen- 
eral adoption  of  the  "batch"  or  "block"  ssytem  has 
been  a  boon  to  the  accounting  done  by  the  receiv- 
ing teller,  and  this  plan  is  now  in  operation  in  all 
modern  banks.  Under  this  system  the  correctness 
of  the  deposit  ticket  is  not  tested  as  to  listing  or 
addition  when  received.  Instead,  the  ticket  is 
handed  to  an  assistant,  who  assorts  the  items  in 
groups;  for  example,  self-checks,  clearing  house 
checks,  non-clearing  local  checks,  out-of-town 
checks  and  money.  Further  division  may  be  made 
of  any  of  these  groups  if  the  size  of  the  bank  war- 
rants. The  items  are  then  listed  on  an  adding 
machine  in  parallel  columns,  each  of  which  is 
headed  by  the  name  of  the  department  which  will 
receive  the  checks.  The  totals  are  then  "picked 
up"  or  recapitulated,  and  must  agree  with  the  total 
of  the  ticket,  which  is  listed  in  another  column  on 
the  sheet  and  the  name  of  the  depositor  added 
opposite.  If  the  deposits  are  small,  several  are 
combined  on  one  sheet.    At  the  end  of  the  day  a 


BANKING    FOR    BEGINNERS 


235 


total  is  made  of  each  column  on  all  the  sheets  or 
"blocks,"  and  these  being  recapitulated  must  equal 
the  total  deposits,  which  is  the  teller's  proof.  The 
advantages  of  this  plan  are  many.  No  effort  or 
time  is  lost  in  the  original  proof  of  the  ticket.  As 
the  items  are  listed  in  separate  columns  a  total  is 
arrived  at  which  not  only  proves  the  ticket  but 
gives  separate  totals  which  other  departments  use 
to  prove  their  own  work  against.  If  differences 
occur  they  are  segregated  into  groups  and  thus  can 
be  more  easily  located. 

TYPICAL   DISTRIBUTION   SHEET   USED    IN   THE 
"BLOCK" SYSTEM 


Country 
Checks 

$162.29 

15.27 

222.12 

83.33 

1,000.00 

City  Checks 

$29.16 

4.22 

.87 

926.12 

Checks  on 
this  bank 

$110.28 

92.15 

47.16 

523.06 

10.00 

Cash 
$116.22 

Depositors 

Smith  &  Co. 
John  Doe 
S.  Williams 

$960.37 

Recapitulation 

$1,483.01 
960.37 
782.65 
116.22 

$1,483.01 

$782.65 

Deposits 

$1,826.10 

4.22 

1,511.93 

$3,342.25 

$3,342.25 

236  BANKING  FOR  BEGINNERS 

PAYING  TELLER'S  DEPARTMENT.— The 

paying  teller's  duties  are  the  direct  opposite  of  the 
receiving  teller's.  It  is  often  said  that  the  paying 
teller  has  the  most  important  position  in  the  bank 
because  on  him  falls  the  responsibility  of  paying 
out  the  bank's  funds.  It  is  not  questioning  the 
measure  of  his  responsibility  to  point  out  that  it 
is  not  the  bank's  funds  but  the  depositors'  money 
that  he  is  called  upon  to  pay.  If  this  money  is  paid 
to  the  wrong  person  the  bank  is  liable  to  pay  it 
again  to  the  proper  payee,  and  if  the  teller  pays  out 
some  of  the  bank's  money  as  well  as  the  depositor's 
— in  other  words,  permits  an  overdraft — then  again 
the  bank  loses.  This  teller,  therefore,  stands  be- 
tween the  bank  and  loss.  Even  more  than  the  re- 
ceiving teller,  his  personality,  his  mental  and  physi- 
cal make-up  must  leave  nothing  to  be  desired.  He 
must  be  courteous,  patient,  alert,  well  informed  as 
to  business  methods  in  general,  keen  and  resource- 
ful. Above  all,  the  teller,  whether  paying  or  receiv- 
ing, must  know  his  own  bank  thoroughly.  Tellers 
almost  invariably  are  graduates  of  many  years' 
experience  in  the  bank. 

When  a  check  is  presented  for  payment  at  the 
window  the  teller  must  be  assured  (1)  that  the 
signature  of  the  drawer  is  genuine;  (2)  that  the 
person  presenting  the  check  is  the  payee  or,  if  the 
check  has  more  than  one  endorsement,  that  such 
endorsements  are  all  present  and  the  person  who 
asks  payment  is  the  last  endorser;   (3)  that  the 


BANKING    FOR    BEGINNERS         237 

balance  of  the  drawer  is  sufficient  to  cover  the 
amount  of  the  check;  (4)  that  the  check  is  not 
dated  ahead;  (5)  that  there  is  no  order  from  the 
drawer  on  file  to  stop  payment. 

When  a  check  is  presented  for  certification  the 
paying  teller  takes  the  same  precautions  with  re- 
spect to  the  genuineness  of  the  signature,  balance 
of  the  drawer  and  the  question  of  payment  being 
stopped  as  if  the  check  were  presented  for  pay- 
ment. The  matter  of  endorsement  will  be  taken 
care  of  when  the  certified  check  is  finally  presented 
for  payment.  Checks  are  certified  by  writing  or 
stamping  across  the  face  "Certified.  Good  when 
properly  endorsed."  The  date  and  name  of  the 
bank,  with  the  signature  of  an  officer  or  teller,  is 
added.  The  account  of  the  drawer  is  charged  at 
once  and  the  effect  is  that  the  bank  thereupon  as- 
sumes the  liability  for  the  payment  of  the  check. 

VAULT  CASH.— The  paying  teller  is  the 
guardian  of  the  bank's  funds.  He  usually  has  cus- 
tody of  the  vault  cash.  He  sees  that  the  supply  of 
money  in  various  denominations  is  at  all  times 
sufficient  for  the  needs  of  the  customers  and  is 
properly  arranged  for  quick  handling.  Money  paid 
out  is  counted  twice  before  leaving  his  hands,  but 
in  order  to  avoid  one  handling  while  the  line  before 
his  window  waits,  he  will  have  bills  crossed  in  piles, 
or  under  bands,  containing  so  many  one's,  two's 
or  five's  as  the  case  may  be.  Coins  are  neatly  piled 
or  rolled  in  sealed  wrappers.     This  work  is  done 


238 


BANKING    FOR    BEGINNERS 


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BANKING    FOR   BEGINNERS         239 

by  assistants  during  the  day.  The  bulk  of  the  vault 
cash  is  seldom  disturbed.  It  is  usually  kept  in 
an  inner  compartment  requiring  a  duplicate  key 
held  by  an  officer.  The  teller  has  a  record  of  the 
total  of  this  money  and  of  the  denominations  into 
which  it  is  divided.  The  amount  of  counter  or 
window  cash  which  is  brought  from  the  vault  to 
the  cage  each  day  is  listed  in  the  settlement  book, 
and  with  this  money  the  teller  begins  the  day's 
work.  During  the  entire  day  he  is  paying  out 
cash  for  checks,  or  shipping  it  to  out-of-town  cor- 
respondents of  the  bank  upon  their  written  or 
telegraphic  order.  His  settlement  at  the  end  of 
the  day  is  even  more  simple  than  the  receiving 
teller's.  The  amount  of  the  checks  he  has  cashed 
and  handed  to  the  bookkeepers  (or,  if  they  are 
payable  at  other  banks,  to  the  receiving  teller), 
plus  the  amount  of  cash  on  hand,  must  equal  the 
amount  he  began  the  day  with.  As  soon  as  he 
has  settled,  he  adds  to  his  own  cash  the  cash 
which  is  handed  him  by  the  receiving  and  other 
tellers,  and  this  sum  is  then  carried  forward  to 
begin  the  next  day's  work. 

The  settlement  of  a  teller  who  is  both  paying  and 
receiving  teller  is  a  combination  of  the  two.  The 
teller  begins  the  day  with  a  cash  balance  on  hand. 
He  adds  to  this  amount  the  deposits,  receipts  for 
interest  on  loans,  drafts  sold,  exchange,  etc.,  re- 
ceived during  the  day.  At  the  close  of  business  the 
total  of  his  cash  on  hand  plus  checks  for  other 


240         BANKING    FOR   BEGINNERS 

banks  and  checks  on  his  own  bank  (which  have 
been  cashed)  must  equal  his  total  receipts. 

NOTE  TELLER'S  DEPARTMENT.— Drafts 
on  individuals  must  be  presented  to  the  drawee, 
either  for  payment  or  acceptance,  and  notes  must 
be  at  the  place  where  they  were  made  payable  on 
the  day  they  are  due.  Banks  undertake  to  collect 
these  items  for  their  customers  and  pass  the  pro- 
ceeds to  the  credit  of  their  depositors.  This  func- 
tion is  incidental  to  commercial  banking,  the  bank 
acting  as  the  agent  of  the  owner  of  the  paper  to 
be  collected.  In  small  banks  it  is  not  unusual  to 
see  a  brass  sign  displayed  at  the  receiving  teller's 
window  reading  "Pay  notes  here."  Although  they 
are  not  required  to  do  so  by  law,  all  banks  send 
notices  to  the  makers  of  notes  or  the  drawees  of 
drafts  that  they  hold  the  note  or  draft  awaiting  pay- 
ment, and  some  one  of  the  tellers  or  clerks  is  as- 
signed the  duty  of  receiving  payment.  As  the  bank 
grows,  a  separate  department  is  organized  for  this 
purpose  and  a  note  teller  is  appointed.  He  is 
usually  in  charge  of  the  messengers  or  runners. 
Instead  of  sending  out  notices  the  bank  may  render 
its  customers  better  service  by  having  its  mes- 
sengers present  the  items  for  payment  at  the  place 
of  business  of  the  payer.  The  messengers  also  pre- 
sent checks  for  payment  at  banks  not  represented 
in  the  clearing  house,  collect  coupons  and  return 
unpaid  checks  to  depositors.  It  is  necessary  that 
they  should  exercise  great  care  in  all  these  transac- 


BANKING    FOR    BEGINNERS         241 

tions,  since  for  the  time  being  they  are  the  ac- 
credited representatives  of  the  bank  and  the  bank 
is  bound  by  their  actions. 

The  note  teller  keeps  a  register  record  of  all  the 
"time"  items  that  are  placed  in  his  hands  for  col- 
lection. This  record  consists  of  the  name  of  the 
payer,  the  endorser,  or  the  owner  of  the  item  for 
whom  the  bank  is  making  collection,  the  date  of 
maturity,  the  amount,  and  whether  the  item  is  to 
be  protested  or  not  if  unpaid.  There  may  be  other 
instructions,  as,  for  example,  a  request  for  tele- 
graphic advice  of  payment.  A  column  is  used  to 
record  the  final  disposition  of  the  item,  which  in 
banking  parlance  is  called  "fate."  Usually  a  sepa- 
rate register  is  used  for  drafts,  because  they  may 
require  particular  care.  They  are  often  accom- 
panied by  bills  of  lading  or  other  documents  that 
are  to  be  delivered  only  when  the  drawee  has  paid 
the  draft.  Drafts  are  often  made  payable  "on 
arrival  of  goods,"  and  the  note  teller  keeps  in  touch 
with  the  drawee  so  that  there  may  be  no  unreason- 
able delay  after  the  goods  covered  by  the  draft  have 
reached  their  destination. 

In  making  his  proof  the  note  teller  enters  on 
one  side  of  a  sheet  the  name  and  amount  of  each 
note,  draft  or  check  which  is  to  be  collected  on 
that  day.  As  the  items  are  paid  he  extends  the 
amount  in  another  column  and  opposite  he  makes 
a  memo  of  the  funds  he  has  received.  This  memo 
is  technically  called  the  "satisfaction"  of  that  par- 


242         BANKING    FOR    BEGINNERS 

ticular  entry.  The  total  of  the  items  thus  "satis- 
fied" at  the  end  of  the  day  must  be  equalled  by  the 
cash  and  checks  which  the  note  teller  hands  over 
to  the  paying  and  receiving  tellers. 

COLLECTION  DEPARTMENT.  —  A  subdi- 
vision of  the  note  teller's  department  is  the 
collection  department,  although  some  banks  are 
organized  with  the  latter  as  a  subdivision  of  the 
transit  department.  The  collection  teller,  as  the 
head  of  the  department  may  be  known,  is  charged 
with  the  collection  of  notes  and  drafts  payable  out 
of  town.  These  items  cannot  be  listed  with  checks 
and  cash  items,  but  are  entered  on  separate  sheets. 
The  same  methods  of  bookkeeping  and  collection 
apply  as  with  out-of-town  cash  items,  except  that 
credits  and  debits  are  made  only  upon  receipt  of 
advice  that  the  items  are  paid.  Checks  and  cash 
items,  on  the  other  hand,  are  credited  to  the  de- 
positors on  the  day  of  deposit,  subject,  of  course, 
to  final  payment.  That  is,  if  the  items  are  "not 
good"  they  will  be  returned  and  the  account  of 
the  depositor  will  be  charged.  This  plan  is  adopted 
for  mutual  convenience  made  necessary  by  the 
great  numbers  of  checks  that  are  deposited  daily 
in  every  bank.  If  every  separate  item  required  a 
special  advice  of  payment,  and  would  be  credited 
only  upon  receipt  of  such  advice,  banks  would  be 
compelled  to  increase  the  number  of  their  clerks 
enormously. 

Out-of-town    collections   are    governed   by   the 


BANKING    FOR    BEGINNERS         243 

same  rules  as  city  collections.  The  collection  clerk 
or  teller  makes  a  register  record  of  the  name  of  the 
payer,  the  place  payable,  the  endorser,  and  the 
amount,  together  with  other  instructions.  Usually 
this  record  is  entered  on  slips  made  with  carbon 
copies,  and  the  slips  are  filed  in  drawers  or  cases 
until  advice  is  received.  If  the  bank  is  notified 
by  its  bank  correspondent  that  an  item  has  been 
paid  the  slip  is  taken  out  and  marked  "Paid."  It 
is  then  handed  to  the  bookkeepers.  Using  the  slip 
as  a  debit  or  credit  memorandum,  the  account  of 
the  depositor  is  credited  and  the  account  of  the 
bank  to  which  the  item  was  sent  is  debited. 

The  collection  teller  is  responsible  for  the  items 
entrusted  to  his  care.  He  must  see  to  it  that  notes 
reach  the  town  where  they  are  payable  before  ma- 
turity, that  drafts  are  sent  to  responsible  banks  for 
collection,  that  all  instructions  sent  with  the  items 
are  fully  obeyed  and  that  correct  and  prompt  advice 
of  payment  or  dishonor  is  received. 

LOAN  OR  DISCOUNT  DEPARTMENT.— 
Loans  and  discounts  are  handled  by  an  officer  of 
a  small  bank,  but  in  larger  institutions  a  separate 
department  has  charge  of  the  records  and  the 
mechanical  details  of  the  work.  The  discount  teller 
gives  the  borrower  credit  for  loans  that  have  been 
approved  by  using  cashier's  checks  for  out-of-town 
borrowers  and  ordinary  credit  slips  for  own  cus- 
tomers. In  a  sense,  then,  he  is  a  receiving  teller 
of  a  special  form.    The  actual  loaning  of  the  bank's 


244         BANKING    FOR    BEGINNERS 

money  is  always  done  by  an  officer  of  the  institu- 
tion, regardless  of  its  size  or  kind.  A  kind  of 
journal  record  is  kept  of  the  loans  made  each  day. 
Sometimes  this  book  is  known  as  the  "Offering 
Book,"  in  which  is  entered  every  note  offered  for 
discount.  Those  not  accepted,  or  undesirable  loans, 
are  stricken  off  this  original  book  of  entry.  The 
loans  made  are  transferred  to  the  loan  or  discount 
register.  This  is  usually  a  double-page  book,  the 
record  extending  across  two  pages.  In  columns 
of  suitable  width  are  entered  the  following  records 
of  each  loan:  Maker,  endorser  (or  collateral), 
amount,  where  payable,  when  due,  rate,  discount, 
proceeds.  This  record  may  vary  as  to  details.  For 
example,  one  register  may  be  used  for  both  time 
and  demand  loans,  secured  or  unsecured,  etc.,  while 
other  banks  may  find  it  advisable  to  use  a  separate 
register  for  each  kind  of  loan,  or,  if  a  single  register 
is  used,  further  detail  is  provided  for. 

The  loans  are  then  posted  on  the  Liability 
Ledger.  This  record  consists  of  the  "liability  bal- 
ance" of  each  borrower,  either  on  notes  he  has 
signed  or  notes  he  has  endorsed.  His  liability  as 
borrower  is  kept  in  columns  separate  from  his  lia- 
bility as  endorser  or  surety.  The  first  record  may 
be  used  in  accounting,  since  the  sum  of  the  balances 
due  by  all  borrowers  will  prove  the  corresponding 
figures  on  the  general  ledger,  while  the  figures 
showing  liability  as  endorser  or  surety  are  useful 
chiefly  for  credit  purposes.     The  loans  are  next 


BANKING    FOR    BEGINNERS         245 

posted  on  the  maturity  tickler,  which  is  simply  a 
daily  memorandum  of  loans  as  they  fall  due.  This 
completes  the  records,  the  notes  being  then  filed 
in  a  portfolio  in  the  order  of  their  maturity.  Col- 
lateral is  listed  upon  cards  and  then  placed  in  a 
proper  vault,  or  the  collateral  may  be  recorded  upon 
the  face  of  an  envelope  in  which  it  is  enclosed.  Pro- 
vision is  made  for  keeping  records  of  substitutions 
of  collateral,  and  when  the  borrower  pays  the  loan 
he  signs  a  receipt  for  the  collateral,  which  is  re- 
turned to  him. 

CREDIT  DEPARTMENT.— In  a  larger  com- 
munity it  would  be  impractical,  if  not  impossible, 
for  the  cashier,  in  addition  to  his  other  duties,  to 
keep  track  of  every  local  borrower  and  the  bank 
may  employ  a  "credit  man,"  who  specializes  in 
credits.  The  next  step  is  the  organization  of  a 
credit  department,  usually  in  charge  of  one  of  the 
officers  of  the  bank.  The  credit  department  col- 
lects and  files  every  available  bit  of  information 
concerning  people  or  firms  that  borrow  money. 
This  material  consists  of  financial  reports,  press 
clippings,  personal  interviews,  statements  of  con- 
dition and,  in  fact,  every  item  that  has  even  a  re- 
mote bearing  upon  the  standing  of  borrowers.  It 
requires  technical  training  of  a  high  order  to  prop- 
erly classify  and  analyze  this  data,  but  the  funda- 
mental idea  is  to  get  down  to  the  same  knowledge 
of  the  true  facts  as  our  country  bank  cashier  has 
at   his   command   with   respect   to   his   neighbor. 


246         BANKING    FOR    BEGINNERS 

Credit  is  based  upon  character  or,  as  bankers  put  it, 
the  "moral  risk."  A  simple  but  practical  definition 
of  credit  is  "the  ability  to  buy  with  a  promise  to 
pay."  He  who  has  "good  credit"  can  command 
either  goods  or  money  because  of  the  faith  or  belief 
that  others  have  in  his  promise.  The  word  "credit" 
is  derived  from  the  Latin  "Credo,"  I  believe.  It  is 
not  only  essential  that  the  borrower  have  the  ability 
to  pay  his  note  when  it  is  due — he  must  also  have 
the  desire  or  inclination  to  pay.  To  be  able  to  loan 
money  wisely  and  to  those  who  are  entitled  to  it — 
in  short,  the  ability  to  distinguish  between  a  safe 
risk  and  an  unsafe  one— is  the  quality  that  marks 
the  good  banker. 

BANK  ACCOUNTING.  —  Bank  accounting, 
like  all  other  accounting,  centres  in  the  statement 
of  condition.  The  statement  of  condition  contains 
the  general  or  controlling  accounts  of  the  bank, 
both  resources  and  liabilities,  and  embodies  such 
information  as  is  required  in  official  reports  to  gov- 
ernmental authorities.  National  or  State,  as  the 
case  may  be.  It  would  not  be  impossible,  but  it 
would  be  entirely  impractical,  to  enter  every  figure 
directly  on  the  statement  of  condition.  We  might 
imagine  an  enormous  sheet  on  which  the  capital 
is  entered  as  to  the  ownership  of  each  share  of 
stock.  Instead  of  total  deposits,  the  balance  of  each 
depositor  would  appear  opposite  his  name.  On  the 
other  side,  instead  of  loans  and  discounts,  there 
would  be  an  itemized  list  of  the  loans  with  the 


BANKING    FOR    BEGINNERS         247 

names  of  the  borrowers.  With  such  a  sheet  spread 
out  over  a  floor  space  of  great  area,  we  might 
imagine  the  clerks  crawHng  up  and  down  the 
columns  like  flies,  making  debits  and  credits.  This 
is,  of  course,  absurd,  but  it  is  precisely  what  hap- 
pens, except  that  the  entries  are  made  on  books, 

CONDENSED  BANK  STATEMENT 


RESOURCES 

Loans  and  Discounts    $1,814,025.00 

U.  S.  Bonds  80,500.00 

Other  Bonds,  Stocks  and  Securities...  167,500.00 

Stock  in  Federal  Reserve  Bank 6,000.00 

Real  Estate,  Furniture  and  Fixtures..  40,500.00 

Due  from  Banks 200,000.00 

Cash  and  Sight  Exchange   1,689,000.00 

Due  from  U.  S.  Treasurer 3,500.00 

Other  Resources    6,000.00 

$4,007,025.00 
LIABILITIES 

Capital    $100,000.00 

Surplus    100,000.00 

Undivided  Profits  104,500.00 

Dividends  Unpaid    6,100.00 

Circulation    60,000.00 

Due  to  Banks   50,000.00 

Deposits    3,572,425.00 

Borrowed  Money   4,000.00 

Other  Liabilities  10,000.00 


$4,007,025.00 


248         BANKING    FOR    BEGINNERS 

loose  leaves  or  cards,  and  the  final  results  are  posted 
on  the  statement  of  condition. 

MEANING  OF  A  BANK  STATEMENT.— 
The  accounts  in  a  bank  statement  are  classified  as 
"resources"  and  "liabilities."  "Resources"  com- 
prise what  the  bank  OWNS  (what  it  possesses 
with  which  to  pay  its  debts)  and  "liabilities"  com- 
prise what  the  bank  OWES.  The  creditors  of  the 
bank  may  be  divided  into  three  groups:  (1)  The 
stockholders,  (2)  the  depositors,  (3)  the  general 
public.  The  first  group  are  inclined  to  examine 
the  statement  to  determine  if  the  bank  is  earning 
money,  the  second  group  satisfy  themselves  that 
the  bank  is  safe,  and  the  third  group  look  to  the 
Government  for  protection,  since  they  have  no  voice 
in  the  management  of  the  bank  nor  any  choice  in 
accepting  their  relation  to  the  bank.  The  re- 
sources may  also  be  roughly  divided  into  three 
kinds:  (1)  loans  and  investments  having  a  fixed 
maturity;  (2)  amounts  due  from  other  banks, 
usually  payable  on  demand  or  subject  to  draft ;  (3) 
actual  money  or  cash.  There  is  also  the  bank  build- 
ing, and  with  this  item  there  is  included  the  amount 
of  money  representing  the  vault,  furniture  and 
fixtures.  These  various  items  all  bear  relation  to 
each  other  and  the  trained  observer  is  able  to  base 
an  intelligent  opinion  on  the  condition  of  the  bank 
and  the  sagacity  of  its  officers  by  a  study  of  the 
proportion  of  one  figure  to  another.  A  complete 
analysis,  however,  is  not  possible  except  by  com- 


BANKING    FOR   BEGINNERS         249 

paring  a   series   of   statements   covering  a   long 
period. 

ANALYSIS  OF  LIABILITIES.— The  princi- 
pal liabilities  of  a  bank  are  as  follows: 

(1)  The  first  liability  item  of  importance  is  the 
"capital."  This  should  be  large  enough  to  give 
strength  to  the  bank  and  enable  the  institution  to 
accommodate  the  needs  of  its  customers. 

(2)  The  "surplus"  also  belongs  to  the  stock- 
holders. In  the  case  of  some  banks  a  surplus  fund 
is  created  at  the  time  of  organization  by  stock  sub- 
scriptions at  more  than  par.  The  purpose  of  the 
surplus  fund  is  ( 1 )  to  provide  an  increased  working 
capital  and  (2)  to  establish  a  fund  from  which 
possible  losses  may  be  sustained  without  impairing 
capital. 

(3)  "Deposits"  are  of  several  kinds.  The  term 
"individual  deposits"  is  by  custom  applied  to  de- 
posits that  are  subject  to  check;  that  is,  payable 
on  the  order  of  the  depositor,  this  order  being  writ- 
ten on  an  instrument  called  a  "check."  Savings 
or  time  deposits  are  also  due  to  individuals,  but 
not  subject  to  check;  that  is,  the  bank  may  require 
notice  of  withdrawal  to  be  given.  Certificates  of 
deposit  are  written  acknowledgments  made  by  the 
bank  that  a  deposit  has  been  made  and  the  bank 
will  pay  the  amount  named  upon  presentation  of 
the  certificate  properly  receipted  on  the  back,  or 
endorsed.  Certificates  of  deposit  may  be  payable 
either  at  sight  or  on  a  given  date,  and  are  known  as 


250         BANKING    FOR    BEGINNERS 

demand  or  time  certificates  respectively.  Deposits 
made  by  one  bank  in  another  are  sometimes  called 
bank  deposits,  but  such  accounts  are  officially  re- 
ported as  "due  to  banks." 

ANALYSIS  OF  ASSETS.  —  Turning  to  the 
assets  or  resources  of  the  bank,  the  first  classifica- 
tion of  items  consists  of  the  investments.  These 
vary  as  to  kind  and  ratio  to  the  other  figures  of  the 
statement  as  between  different  kinds  of  banks. 
They  will  also  vary  in  the  same  kind  of  banks  but 
located  in  different  sections  of  the  country.  The 
commercial  bank  must  keep  its  assets  liquid;  that 
is,  constantly  turning  or  moving,  because  its  de- 
positors are  making  active  use  of  their  funds  at 
all  times. 

(1)  "Loans  and  Discounts,"  the  largest  invest- 
ment item  of  the  commercial  bank,  have  fixed 
maturities  and,  therefore,  the  bank  often  buys  bonds 
because  they  can  be  readily  sold  and  converted  into 
mioney  in  case  of  need.  Bonds  are  sometimes  called 
"secondary  reserve"  for  this  reason. 

(2)  The  items  "due  from  banks,"  "checks  and 
cash  items,"  "exchanges  for  the  clearing  house," 
are  amounts  due  by  other  banks  and  are  payable 
on  demand. 

(3)  "Cash,"  actual  money,  usually  classified  as 
to  kinds,  is  self-explanatory.  This  is  the  "till 
money"  of  the  bank  to  care  for  currency  needs. 

(4)  The  building,  furniture  and  fixtures  are 
carried  as  a  resource,  usually  at  a  figure  less  than 


BANKING    FOR    BEGINNERS         251 

their  actual  cost.  This  is  done  not  only  as  a  mar- 
gin of  safety,  but  also  because  few  banks  would 
be  able  to  sell  their  property  at  short  notice  for  its 
full  value. 

DEBITS  AND  CREDITS.— The  first  principle 
in  bank  accounting,  as  in  all  other  bookkeeping, 
is  that  for  every  debit  there  must  be  a  credit  and 
vice  versa.  In  accordance  with  this  fundamental 
theory  the  books  must  always  be  in  balance.  As 
we  have  seen  with  respect  to  the  statement,  every 
dollar  of  liabilities  is  accounted  for  by  another  dol- 
lar of  resources.  This  is  true  of  every  bank.  If 
the  institution  is  large  enough  to  be  divided  into 
departments,  such  departments  are  charged  with 
all  funds  passing  through  their  hands,  and  they 
must  show  on  their  records  what  has  become  of 
every  penny.  Similarly  each  clerk,  bookkeeper  or 
teller  accounts  at  the  end  of  the  day  for  each  item 
of  cash  he  has  handled.  When  he  has  done  so  he 
is  said  to  have  "settled,"  "balanced"  or  "struck  a 
proof."  Every  bank  clerk  has  had  the  experience 
of  remaining  at  his  desk  until  a  late  hour  at  night 
checking  up  his  day's  work  searching  for  a  dijEfer- 
ence  of  a  few  cents.  Often  he  becomes  embittered 
at  what  seems  to  him  a  tyranny  when  the  small 
sum  of  money  involved  is  considered.  The  reason 
he  must  settle,  however,  is  not  on  account  of  the 
possible  loss  of  ten  cents,  but  because  the  most 
important  principle  in  bank  accounting  is  involved. 
"Accuracy  first"  is  a  motto  that  should  be  framed. 


252         BANKING    FOR    BEGINNERS 

figuratively  at  least,  upon  the  wall  of  every  bank. 
BASIC    BOOKS.— The  books  used  by  a  bank 
are  of  various  kinds  and  their  purpose  is  indicated 
by  name. 

(1)  A  "ledger"  is  a  book  used  to  keep  a  record 
of  balances.  To  "post"  means  to  enter  in  the 
proper  columns  either  the  debits  or  credits  on  the 
ledger,  and  the  difference  between  them  represents 
the  balance  either  due  by  or  to  the  bank.  Most 
banks  are  doing  away  with  bound  books,  especially 
ledgers,  and  substituting  cards  or  loose  leaves. 
This  plan  enables  several  men  to  work  on  the  same 
records,  which  would  be  impossible  if  they  were 
bound  in  a  single  book.  Alphabetical  division  is 
also  easier  of  adjustment  and  "inactive"  accounts 
can  be  readily  separated  from  "active"  accounts. 
Totals  of  balances  can  be  listed  upon  adding  ma- 
chines for  proof  more  easily  from  loose  sheets  than 
from  bound  books.  But  whether  bound  or  not, 
records  of  balances  are  kept  upon  ledgers. 

(2)  A  "journal"  is  a  book  in  which  daily  trans- 
actions are  listed  in  regular  order  as  to  accounts, 
and  the  total  debit  or  credit  is  then  posted  on  the 
ledgers.  Journals,  too,  may  be  loose  sheets,  so  that 
they  can  be  inserted  in  the  carriage  of  an  adding 
machine;  indeed,  machines  have  been  invented 
upon  which  both  debits  and  credits  may  be  written 
and  the  machine  will  automatically  subtract  or  add 
and  print  the  new  balance.  The  journal,  then,  is 
merely  a  subdivision  of  the  ledger. 


BANKING    FOR    BEGINNERS         253 

SUBORDINATE  RECORDS.  —  A  depositor 
wishes  his  account  to  be  charged  and  the  money 
paid  to  a  named  payee.  The  piece  of  paper  upon 
which  he  writes  this  order  is  a  "check."  If  he 
deposits  money  he  writes  the  memorandum  of  the 
amount  upon  a  ruled  slip  of  paper  and  this  is  the 
"deposit  ticket."  Bookkeepers  enter  debit  and 
credit  records  upon  their  journals  directly  from 
these  items.  Money,  however,  may  change  hands 
or  from  one  account  to  another  in  other  ways;  by 
letter,  telegram  or  other  debit  and  credit  advice. 
In  such  cases  a  "charge  ticket"  or  "credit  slip,"  as 
the  case  may  be,  is  signed  or  initialed  by  an  officer 
of  the  bank,  and  entry  with  full  explanation  is  made 
upon  a  book,  from  which  record  the  bookkeeper 
makes  his  entries.  This  book  is  known  as  a 
"scratcher,"  "tickler"  or  a  "blotter."  The  terms 
mean  practically  the  same  thing.  A  book  upon 
which  a  complete  description  of  a  negotiable  instru- 
ment or  transaction  is  made  for  a  permanent  record 
or  for  reference  is  called  a  register;  for  example, 
bond  register,  collection  register,  etc.  All  other 
books,  cards,  sheets  of  whatever  nature  are  a  part 
or  subdivisions  of  such  books.  The  records  made 
by  one  clerk  upon  one  set  of  books  in  a  well- 
appointed  accounting  system  go  to  check  the 
records  of  another  clerk  upon  a  different  set  of 
books.  For  instance,  the  paying  teller  and  the 
receiving  teller  will  each  keep  a  record  of  checks 
cashed  or  deposited  payable  within  the  bank.    The 


254         BANKING    FOR    BEGINNERS 

debit  postings  of  the  individual  bookkeeper  would 
agree  with  the  teller's  figures.  Skillful  accounting 
lies  in  making  the  fullest  possible  use  of  original 
entries,  at  the  same  time  having  a  check  on  all 
figures  to  guard  against  either  error  or  fraud. 

GENERAL  LEDGER  DEPARTMENT.— The 
general  ledger  bookkeeper  is  the  bookkeeper  of  the 
bank.  It  may  be  said  that  all  other  books  and 
records  are  a  part  of  the  general  ledger.  Every 
transaction  of  whatever  nature  gravitates  to  this 
ledger.  The  keeper  of  the  general  ledger  may  be 
said  to  be  the  dealer  in  wholesale  figures ;  the  other 
clerks  are  the  retailers.  He  has  to  do  with  totals 
of  completed  transactions;  the  tellers  and  other 
bookkeepers  are  concerned  with  the  details.  The 
accounts  on  the  general  ledger  consist  of  the  items 
in  the  bank's  statement  of  condition,  known  as  the 
"control  accounts."  The  general  ledger  book- 
keeper makes  his  postings  at  the  end  of  the  day 
or  the  first  thing  in  the  morning  before  the  bank 
has  opened  for  business.  No  matter  how  large 
the  bank  may  be,  this  posting  of  debit  and  credit 
totals  takes  but  very  little  time,  and  in  small  banks 
the  cashier  may  do  this  work.  More  often  the  clerk 
who  "runs"  the  individual  ledger  is  also  responsible 
for  the  general  ledger.  In  large  banks  the  head 
bookkeeper  (as  he  is  sometimes  called)  is  given 
additional  duties  and  responsibilities.  He  makes 
the  daily  calculation  of  reserve  and  keeps  the  record 
of  the  earnings  and  similar  data.    Most  banks  keep 


BANKING    FOR    BEGINNERS         255 

a  book  which  is  known  as  the  "daily  comparative 
statement"  book.  In  this  book  a  record  is  kept 
showing  the  figures  of  each  day  side  by  side  with 
the  same  items  of  that  day  the  previous  year  or 
years.  These  statistics  are  of  great  interest  and 
value  to  the  officers  and  directors  and  often  serve 
as  a  guide  that  will  indicate  what  may  be  expected. 
With  knowledge  thus  tabulated  the  bank  is  able 
to  serve  its  patrons  more  intelligently,  since  by 
using  the  law  of  averages  a  reasonable  forecast 
can  be  made  and  the  needs  of  depositors  and  bor- 
rowers may  be  anticipated.  The  stock  book,  which 
contains  the  names  of  the  stockholders  and  the 
number  of  shares  held  by  each,  may  also  be  kept 
by  the  head  bookkeeper. 

COUNTRY  BANK  DEPARTMENT.  —  The 
general  bookkeeper  usually  has  charge  of  the  ac- 
counts with  other  banks.  These  are  kept  just  as 
the  individual  accounts  are  and  are  subject  to  the 
same  kinds  of  debits  and  credits.  In  addition  to 
the  credit  accounts,  or  those  accounts  which  repre- 
sent the  balances  of  other  banks,  there  are  usually 
many  debit  balances,  which  in  total  are  carried  on 
the  general  ledger  as  "due  from  banks."  As  each 
day's  letters  containing  checks  are  sent  to  corre- 
spondent banks,  the  amount  of  such  checks  are 
debited  to  these  banks.  As  remittances  are  received 
in  payment  the  accounts  are  credited.  A  daily 
record  is  kept  of  each  account,  known  either  as  the 
"statement"  or  "account  current,"  and  at  the  end 


256 


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BANKING    FOR    BEGINNERS         257 

of  the  month  this  statement  is  ruled  up  and  for- 
warded to  the  correspondent  banks  for  "reconcile- 
ment." Since  there  are  letters  in  transit,  drafts 
not  yet  paid,  collection  credits,  returned  items  and 
other  entries  constantly  "in  the  air"  between  two 
banks  that  do  business  with  each  other,  this  recon- 
cilement is  necessary  if  the  accounts  are  to  be 
settled  as  of  any  given  day.  It  is  very  interesting 
work  and  an  example  of  the  method  used  is  given. 
We  will  assume  that  a  city  bank  has  sent  a  monthly 
statement  to  a  country  bank  showing  the  actual 
debits  and  credits  for  the  month  and  the  balance 
due  the  country  bank.  The  country  bank  would 
then  fill  out  a  reconcilement  blank  about  as  shown 
in  the  illustration  and  mail  it  to  the  city  bank.  The 
purpose  of  the  reconcilement,  as  will  be  seen,  is  to 
account  for  the  difference  between  the  balances 
shown  on  the  books  of  the  two  banks  on  the  same 
date.  Errors  or  omissions  of  debit  or  Credit  entries 
are  then  adjusted. 

INDIVIDUAL  LEDGER  DEPARTMENT.— 
The  individual  ledgers  are  the  books  upon  which 
the  detail  records  of  the  deposits  are  kept.  Such 
records  consist  of  either  debits  or  credits  and  the 
balance.  Modern  ledgers  allow  three  columns  to 
each  account,  one  for  debits,  one  for  credits  and 
one  for  the  balance,  although  many  banks  still  use 
the  two-column  ledger,  the  credits  being  posted 
beneath  the  balance,  which  is  extended  in  red  ink. 
Bound  ledgers  are  gradually  giving  way  to  loose 


258         BANKING    FOR    BEGINNERS 

sheets  or  cards,  each  account  having  a  separate  leaf 
or  card.  This  plan  is  much  more  convenient,  since 
closed  or  "dead"  accounts  can  be  eliminated  and 
inactive  accounts  can  be  kept  separate  from  those 
that  are  active.  It  is  also  easier  to  make  alphabeti- 
cal divisions  of  the  ledgers  when  an  increase  of 
work  makes  it  necessary. 

While  there  are  several  bookkeeping  systems  em- 
ployed by  banks,  they  are  all  alike  in  principle,  and 
vary  only  because  the  business  of  the  customers 
warrants  different  labor-saving  methods  on  the 
part  of  the  bank  For  example,  active  commercial 
accounts  require  considerable  posting  of  checks  and 
deposit  tickets  daily  and  the  balances  are  constantly 
changing.  Savings  banks,  on  the  other  hand,  deal 
with  a  class  of  people  who  make  deposits  only  at 
irregular  intervals  and  withdrawals  are  also  infre- 
quent. We  will  discuss  the  methods  usually  em- 
ployed in  a  commercial  bank  using  the  three- 
column,  loose-leaf  ledger. 

The  bookkeeper  receives  checks  from  both  the 
paying  and  receiving  tellers,  although  in  some  very 
large  banks  they  come  to  him  from  the  check  teller, 
who  assorts  the  checks  as  to  the  ledgers  and  ex- 
amines the  signatures  and  the  endorsements. 
Sometimes  the  bookkeeper  is  held  responsible  for 
the  payment  of  a  check  bearing  a  forged  or  incor- 
rect signature  or  endorsement,  but  usually  his 
liability  in  this  direction  is  limited  to  "stop- 
payments."    A  good  bookkeeper,  however,  whether 


BANKING    FOR    BEGINNERS         259 

he  is  specifically  charged  with  this  duty  or  not,  is 
always  on  guard  against  irregularities.  Checks 
come  in  "courses"  from  the  tellers;  that  is,  at  cer- 
tain times  during  the  day,  after  exchanges  are  re- 
ceived from  the  clearing  house,  or  the  morning  mail 
is  opened  and  at  other  fixed  periods,  batches  of 
checks  come  into  the  bookkeeper's  hands.  He  as- 
sorts them  alphabetically  and  enters  them  upon  a 
journal,  which  is  usually  a  loose  sheet  that  fits  into 
an  adding  machine.  A  total  of  the  checks  of  each 
depositor  is  struck  and  these  totals  are  then  posted 
in  the  debit  columns  against  the  proper  accounts. 
There  are  ledgers  in  use  which  have  an  extra 
column  for  detail  checks,  so  that  no  journal  is 
necessary.  As  the  bookkeeper  posts  he  watches  the 
balances  to  see  that  the  accounts  are  not  overdrawn. 
He  must  be  extremely  careful  not  to  post  checks 
to  the  wrong  account.  This  is  very  apt  to  happen 
if  the  bookkeeper  is  careless,  because  nearly  all 
banks  have  accounts  of  similar  and  sometimes 
identical  names.  If  a  check  drawn  by  John  A. 
Smith  is  refused  as  not  good  because  the  account 
has  been  apparently  overdrawn  by  certain  checks 
that  should  have  been  charged  to  John  E.  Smith, 
the  bank  is  not  only  apt  to  lose  a  good  account,  but 
may  even  be  liable  to  John  A.  Smith  for  whatever 
damage  his  credit  has  suffered. 

Alternating  with  the  posting  of  debits,  the  book- 
keeper posts  the  credits  or  deposit  tickets,  which 
also  run  in  "courses."     In  making  credit  entries 


260 


BANKING    FOR    BEGINNERS 


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BANKING    FOR    BEGINNERS         261 

as  much  care  must  be  observed  as  in  posting  debits, 
and  for  the  same  reasons.  In  addition  to  the  de- 
posit ticket  entries  there  may  be  other  kinds  of 
credits.  If  the  depositor  has  received  a  loan  the 
bookkeeper  receives  advice  of  the  amount  from 
the  loan  clerk,  and  opposite  the  amount  in  the 
credit  column  he  may  place  a  mark,  "L"  meaning 
loan,  "N"  meaning  note,  or  "D"  meaning  discount. 
If  a  collection  item  has  been  paid  the  credit  will 
be  marked  "C."  These  marks  are  merely  an  ab- 
breviated method  of  identifying  entries,  of  assist- 
ance in  the  process  of  examining  the  accounts  of 
the  bank. 

At  the  end  of  the  day  the  bookkeeper  puts  all 
his  checks  together  in  alphabetical  order  and  ar- 
ranges the  deposit  tickets  similarly.  Most  banks 
are  now  using  the  ^'statement  system"  of  balancing 
pass-books.  This  work  is  done  by  a  separate  clerk 
or  subdivision  of  the  bookkeeping  department. 
Each  depositor  has  a  separate  sheet  or  statement 
on  which  are  entered  the  daily  transactions.  This 
is  sometimes  called  the  "skeleton  ledger,"  because 
its  chief  purpose  is  to  show  the  daily  balance  of 
each  account  rather  than  the  detail.  Since  all  the 
checks  and  deposit  tickets  are  posted  the  following 
day,  and  hence  are  available  for  posting  without 
any  delay,  the  statement  clerk  is  able  to  handle 
many  more  accounts  than  the  bookkeeper,  whose 
work  comes  to  him  in  relays.  After  the  checks  and 
tickets  are  entered  on  the  statement  they  are  filed 


262         BANKING    FOR    BEGINNERS 

away,  the  deposit  tickets  remaining  in  possession  of 
the  bank  and  the  checks  being  handed  to  the  de- 
positor at  the  end  of  the  month.  There  was  a  time 
when  the  checks  were  also  retained  (as  they  still 
are  in  some  foreign  banks),  but  the  custom  has 
grown  in  this  country  to  regard  the  endorsement 
on  a  check  as  a  receipt  in  payment  of  a  debt  and 
therefore  the  rightful  possession  of  the  drawer. 
The  completed  monthly  statements,  showing  the 
balance  of  each  depositor,  are  compared  with  the 
ledger  balances  to  prove  the  correctness  of  the 
amounts,  and  they  are  then  given  to  the  depositors. 
Under  the  pass-book  settlement  system  the  deposit 
entries  in  the  book  are  added  to  the  last  settlement 
balance,  the  checks  are  listed  on  an  adding  machine 
and  the  total  is  deducted,  showing  the  new  balance, 
which  must  agree  with  the  ledger  balance. 

Probably  the  first  thing  the  bookkeeper  will  do 
in  the  morning  is  to  make  up  a  list  of  balances  of 
all  the  important  accounts.  This  is  usually  a  pencil 
memorandum  and  is  handed  to  the  paying  teller  or 
an  officer  for  their  information  and  guidance.  An- 
other duty  to  be  performed  at  odd  moments  during 
the  day  is  keeping  the  record  of  interest  bearing 
balances.  Banks  differ  as  to  the  method  of  calcu- 
lating the  net  balance  upon  which  interest  is  al- 
lowed. The  usual  and,  incidentally,  the  soundest 
method  is  to  deduct  from  the  balance  the  amount 
of  checks  presented  against  it  that  day  and  the 
amount  of  uncollected  checks  represented  by  de- 


BANKING    FOR    BEGINNERS         263 

posits  of  out-of-town  items  deposited  during  the 
preceding  days.  The  length  of  time  such  deduc- 
tions cover  is  governed  by  the  distance  and  time 
taken  in  collecting  them.  Interest  is  then  allowed 
on  the  net  balance,  since  this  represents  the  true 
balance  of  the  depositor  available  for  loans.  The 
principle  is  the  same  as  that  underlying  the  calcu- 
lation of  reserve. 

INDIVIDUAL  BOOKKEEPER'S  SETTLEMENT 


Paying  Teller  Balance  Aug.  1 .  .$206,142.10 

checks $29,316.10  Deposits    52,143.16 

Receiving  Teller  Collections    ....        1,624.15 

checks   11,416.05  Loans    2,500.00 

Balance  Aug.  2  221,677.26 


$262,409.41  $262,409.41 


Few  modern  banks — if  we  except  the  mutual 
savings  banks — use  the  "trial  balance"  system  of 
settlement  for  the  individual  ledgers.  Settlement 
is  made  daily.  The  bookkeeper  begins  the  day  with 
a  total  of  all  the  balances  as  they  were  at  the  close 
of  the  preceding  day's  business.  After  he  has  fin- 
ished the  day's  postings  he  makes  his  proof  by 
adding  all  the  credits  to  this  balance  total  and  then 
subtracts  the  debits  or  total  of  checks  as  shown 
on  his  journals.  The  sum  of  the  new  balances 
which  he  gets  by  running  his  accounts  on  an  add- 


264         BANKING    FOR    BEGINNERS 

ing  machine  must  equal  the  figures  shown  on  his 
calculation. 

As  an  illustration  of  the  way  in  which  the  figures 
of  one  clerk  serve  as  a  check  on  the  figures  of  an- 
other, the  bookkeeper's  proof  furnishes  a  good 
example.  The  totals  of  checks  charged  against  the 
various  accounts  are  taken  from  the  bookkeeper's 
journal  and  these  totals  must  agree  with  the  figures 
the  tellers  use  in  their  own  settlements.  This  is 
also  true  of  the  total  of  deposits,  etc. 


CHAPTER  X 


Federal  Reserve  System 

BANKING  BEFORE  THE  ESTABLISH- 
MENT OF  THE  FEDERAL  RESERVE 
SYSTEM.— The  National  Bank  Act  of  February 
25,  1863  (amended  many  times),  controlled  our 
National  banking  system  until  November  16,  1914, 
when  the  Federal  Reserve  banks  were  opened 
This  act  of  1863  provided  that  any  National  bank 
depositing  Government  bonds  with  the  Treasurer 
of  the  United  States  should  be  entitled  to  receive 
circulating  notes  to  an  amount  not  exceeding  90% 
of  the  market  value  of  the  bonds.  That  is,  if  X 
bank  deposited  bonds  with  the  United  States  Treas- 
urer worth  $100,000  on  the  market,  the  bank  would 
be  allowed  to  issue  bank  notes  to  not  over  $90,000. 
The  National  banks  were  prohibited  from  issuing 
any  other  form  of  notes  to  circulate  as  money.  An 
act  of  March  3,  1865,  provided  that  notes  issued 
by  State  banks  should  be  taxed  10%.  This  tax  was 
so  heavy  that  State  banks  found  it  unprofitable 
to  issue  their  notes.  The  original  act  of  1863  had 
provided  for  the  incorporation  of  National  banks 
and  a  method  by  which  State  banks  could  become 
National  banks.  An  act  of  March  14,  1900,  per- 
mitted the  issuance  of  bank  notes  up  to  100%  of 
the  bonds,  instead  of  90%  as  previously,  and  the 
formation  of  banks  with  capital  as  low  as  $25,000. 

265 


266         BANKING    FOR    BEGINNERS 

NATIONAL  BANK  NOTES.— A  bank  note  is 
a  non-interest  bearing  obligation  of  a  bank.  It  is 
payable  on  demand  to  the  bearer  in  lawful  money. 
Only  Federal  Reserve  and  National  banks  now 
issue  them.  The  Federal  Reserve  Act  of  1913  did 
not  abolish  the  right  to  issue  National  bank  notes. 
Notes  may  be  issued  up  to  the  par  value  of  the 
bonds  deposited,  provided  that  the  issue  does  not 
exceed  the  market  value  of  the  bonds  nor  the  capital 
of  the  issuing  bank.  Thus,  if  Government  bonds 
are  worth  only  95  on  the  market,  then  the  bank 
may  issue  notes  equal  to  95%  of  the  par  value  of 
the  bonds.  The  Secretary  of  the  Treasury  has 
ruled  in  recent  years  that  bonds  valued  at  95  will 
be  satisfactory  for  $100  of  notes.  If  the  bank  has 
a  capital  of  $100,000  it  will  not  be  allowed  to  issue 
notes  for  over  that  amount.  Not  more  than  one- 
third  of  a  bank's  total  issue  may  be  in  $5  notes; 
smaller  denominations  are  forbidden.  Bank  notes 
must  be  signed  by  the  president  and  cashier  of  the 
issuing  bank.  National  banks  are  compelled  to 
redeem  (pay  in  cash)  their  own  notes  at  their  own 
counter.  All  National  banks  are  required  by  law  to 
receive  the  notes  of  other  National  banks  at  par. 
Any  National  bank  which  issues  notes  may  retire 
(cancel  the  obligation  of  the  bank)  its  notes  in  sums 
of  not  less  than  $9,000  at  one  time  by  depositing 
lawful  money  with  the  Treasurer  of  the  United 
States  for  their  redemption.  An  equal  amount  of 
bonds  will  then  be  returned  to  the  bank.    But  not 


BANKING    FOR    BEGINNERS         267 

over  $9,000,000  of  notes  can  be  retired  in  any  one 
month.  The  Federal  Reserve  Act  has  made  it  per- 
missible for  National  banks  to  retire  their  notes  by 
sale  of  the  bonds  at  par  to  the  Federal  Reserve 
banks,  when  the  Federal  Reserve  Board  sees  fit  to 
require  the  Federal  Reserve  bank  to  take  them,  but 
this  is  subject  to  a  limitation  of  twenty-five  millions 
of  dollars  in  any  one  year. 

OTHER  FORMS  OF  PAPER  MONEY  USED 
IN  THE  UNITED  STATES.— There  are  many 
other  forms  of  paper  money  that  are  used  in  this 
country.  Gold  certificates,  silver  certificates,  and 
United  States  notes  make  up  the  bulk  of  our  cur- 
rency. The  Treasury  notes  of  1890  are  rapidly 
disappearing.  Reserve  bank  notes  issued  by  the 
Federal  Reserve  banks,  and  Federal  Reserve  notes 
issued  to  the  Federal  Reserve  banks  under  authority 
of  the  Federal  Reserve  Board,  will  also  be  discussed 
in  this  chapter.       ^^ 

GOLD  CERTIFICATES.  —  These  are  paper 
certificates  issued  against  gold  coin  or  bullion  held 
in  trust  in  the  Treasury.  They  are  really  ware- 
house receipts  issued  by  the  Government  for  gold 
coin  and  bullion  deposited  with  the  Secretary  of 
the  Treasury  by  individuals.  Not  less  than  $20 
in  coin  will  be  accepted  by  the  Government  at  one 
time,  and  the  certificates  may  not  be  issued  in 
denominations  of  less  than  $10.  They  are  redeem- 
able in  gold  coin  at  the  Treasury  and  at  all  Sub- 
Treasuries  of  the  United  States.  At  least  one-fourth 


268         BANKING    FOR    BEGINNERS 

of  all  certificates  outstanding  shall  be  in  denomina- 
tions of  $50  or  less.  They  are  receivable  by  the 
Government  for  customs,  taxes  and  all  public 
dues,  and  may  be  used  by  a  National  bank  as  part 
of  its  "reserve."     ~ 

SILVER  CERTIFICATES.  —  These  are  re- 
ceipts for  silver  coin  deposited  with  the  Secretary 
of  the  Treasury.  They  represent  silver  dollars,  and 
have  largely  displaced  them  in  actual  use.  They 
are  issued  in  denominations  as  small  as  $1,  $2  and 
$5.  Like  gold  certificates  they  are  receivable  for 
customs,  taxes  and  public  dues,  and  may  be  counted 
in  the  reserve  of  National  banks. 

TREASURY  NOTES  OF  1890.— These  were 
authorized  by  the  act  of  1890,  which  provided  that 
the  Secretary  of  the  Treasury  should  buy  during 
each  month  not  less  than  4,500,000  ounces  of  silver, 
paying  for  the  same  with  Treasury  notes,  redeem- 
able on  demand  in  either  gold  or  silver  coin  (silver 
certificates  are  redeemable  only  in  silver).  The 
act  of  1900  provided  for  the  retirement  of  the 
Treasury  notes,  which  were  issued  in  denomina- 
tions ranging  from  $1  to  $1,000.  As  the  Treasury 
notes  are  turned  in  for  redemption,  silver  certifi- 
cates are  substituted  for  them.  There"~are  now 
only  about  $2,000,000  of  the  Treasury  notes  out- 
standing. 

UNITED  STATES  NOTES.— These  were  first 
issued  in  1862  to  provide  the  Treasury  with  funds 
to  meet  the  heavy  expenses  of  the  Civil  War,  owing 


BANKING    FOR    BEGINNERS         269 

to  the  failure  to  adopt  a  vigorous  taxation  policy.  A 
Before  the  war  was  over,  $450,000,000  of  these  had  fi». 
been  issued.  These  notes  are  also  known  as  "green- 
backs." They  are  legal  tender  for  all  debts,  both 
public  and  private,  except  duties  on  imports  and 
interest  on  the  public  debt.  When  these  notes  are 
presented  the  United  States  Treasury  redeems  them 
in  gold  coin.  A  fixed  amount  of  approximately 
$347,000,000  is  outstanding  at  the  present  time, 
and  the  law  requires  their  reissuance  when  re- 
deemed. They  have  been  issued  in  both  large  and 
small  denominations.  The  increased  demand  for 
small  bills  led  to  the  passage  of  an  act  in  1907 
providing  for  the  issue  of  United  States  notes  in 
denominations  of  $1,  2  and  $5  and  the  cancellation 
of  an  equal  amount  of  the  higher  denominations. 
CHARACTERISTICS  OF  THE  BANKING 
SYSTEM  OF  THE  UNITED  STATES  ON 
JUNE  30,  1914.  —  Numerous  small  and  inde- 
pendent banks,  few  large  banks  and  no  branches; 
note  issue  unlimited  as  to  aggregate  amount  and 
issued  by  numerous  separate  institutions;  note 
issues  absolutely  secure  but  quite  inelastic,  owing 
to  the  peculiar  methods  of  issue  and  lack  of  prompt 
j-edemption ;  the  only  nation  that  regulated  deposit 
banking  by  requiring  minimum  specified  reserves, 
and  these  reserves  by  law  and  custom  were  con- 
centrated in  New  York  and  other  central  reserve 
cities,  where  they  were  loaned  upon  call,  and  were 
practically  unavailable  in  any  serious  emergency. 


270         BANKING    FOR    BEGINNERS 

NEED  FOR  FEDERAL  RESERVE  SYSTEM. 
— The  National  Bank  Act  proved  inadequate  to 
meet  modern  needs.  There  was  a  lack  of  elasticity 
in  the  currency  of  the  country — that  is,  the  peri- 
odical demands  for  money  and  currency  coming 
from  the  great  agricultural  sections  of  the  West 
and  South  could  not  be  adequately  met.  The 
method  of  handling  the  bank  reserves  also  proved 
imperfect  and  insufficient;  vast  sums  of  money 
v^ere  accumulated  in  the  three  central  reserve  cities 
of  New  York,  Chicago  and  St.  Louis.  The  banks 
in  these  cities  would  loan  out  this  money  on  call 
loans.  When  the  banks  throughout  the  country 
found  it  necessary  to  draw  on  the  reserves  they 
/  had  in  the  large  cities,  to  meet  the  seasonal  demands 
\  of  business  and  agriculture,  the  large  city  banks 
were  required  to  call  these  demand  loans.  This 
i  would  frequently  result  in  high  money  rates  and 
[radical  declines  in  security  prices.  If  business  con- 
ditions in  general  were  not  especially  good  a  panic, 
or  at  least  great  alarm,  would  result. 

WHAT  IS  THE  FEDERAL  RESERVE  SYS- 
TEM?— Congress  passed  the  Federal  Reserve  Act 
in  1913  and  the  banks  were  opened  for  business 
November  16,  1914.  The  entire  country  has  been 
divided  into  twelve  districts,  in  each  of  which  there 
is  one  Federal  Reserve  bank.  These  are  located 
in  Boston,  New  York,  Philadelphia,  Cleveland, 
Atlanta,  Chicago,  St.  Louis,  Richmond,  Minne- 
apolis,  Kansas   City,   Dallas   and   San   Francisco. 


BANKING    FOR    BEGINNERS         271 

WHO  OWNS  THE  FEDERAL  RESERVE 
BANKS? — They  are  owned  by  a  large  number 
of  National  banks,  which  are  compelled  to  buy 
the  stock,  and  by  an  increasing  number  of  State 
banks  and  trust  companies,  which  may  buy  the 
stock  if  they  wish,  and  if  they  are  willing  to  fulfill 
certain  requirements.  These  member  banks  have 
been  compelled  to  subscribe  6%  of  their  capital 
and  surplus  toward  the  capital  stock  of  the  district 
banks.  Of  this,  one-half  was  paid  in  by  May  6, 
1915,  and  the  remainder  is  payable  upon  call  of  the 
Federal  Reserve  Board.  These  "member  banks" 
are  entitled  to  receive  a  cumulative  dividend  of 
6%  upon  paid-in  subscriptions;  the  remainder  of 
earnings  will  be  used  one-half  for  additions  to  sur- 
plus until  it  reaches  a  satisfactory  size,  and  all  other 
earnings  will  go  to  the  United  States  Government 
as  a  franchise  tax.  As  amended  June  21,  1917, 
the  principal  provisions  of  the  Federal  Reserve 
Act  regarding  the  membership  of  State  banking 
institutions  in  the  Federal  Reserve  System  are  as 
follows : 

(a)  Subject  to  the  provisions  of  the  Federal 
Reserve  Act  and  the  regulations  of  the  Federal 
Reserve  Board,  State  banks  becoming  members  of 
the  Federal  Reserve  System  retain  full  charter 
rights  and  statutory  rights;  they  may  continue  to 
exercise  all  corporate  powers  granted  by  the  States 
in  which  created,  and  are  entitled  to  all  privileges 
of  member  banks.     They  are,  however,  required 


272         BANKING    FOR    BEGINNERS 

to  conform  to  the  reserve  and  capital  requirements 
of  the  Federal  Reserve  Act  and  to  the  provisions 
of  the  law  imposed  on  National  banks  which  pro- 
hibit them  from  lending  on  or  purchasing  their  own 
stock,  and  which  relate  to  the  withdrawal  or  im- 
pairment of  their  capital  stock  or  to  the  payment 
of  unearned  dividends. 

(b)  A  member  State  bank  may  withdraw  from 
the  Federal  Reserve  System  after  giving  six  months 
notice  to  the  Federal  Reserve  Board,  upon  sur- 
render and  cancellation  of  its  holdings  of  capital 
stock  in  the  Federal  Reserve  bank,  but  a  Federal 
Reserve  bank  shall  not  cancel,  during  any  one  cal- 
endar year,  more  than  25  per  cent,  of  its  capital 
stock,  except  by  express  authority  of  the  Federal 
Reserve  Board.  A  member  bank  surrendering 
stock  for  cancellation  is  entitled  to  receive  therefor 
a  refund  of  its  cash  paid  subscription,  with  interest 
at  the  rate  of  one-half  of  one  per  cent,  per  month 
from  date  of  last  dividend,  if  earned;  the  amount 
refunded  in  no  case  to  exceed  the  book  value  of  the 
stock  at  that  time. 

(c)  A  member  State  bank  is  not  subject  to  the 
restrictions  imposed  on  National  banks  limiting 
the  liability  of  any  one  person  to  10  per  cent,  of  the 
capital  and  surplus,  or  30  per  cent,  of  the  capital 
of  such  bank.  A  Federal  Reserve  bank  may  not, 
however,  rediscount  for  a  State  bank,  notes,  drafts 
or  bills  of  exchange  (exclusive  of  bills  of  exchange 
drawn  against  actually  existing  values  and  of  com- 


BANKING    FOR    BEGINNERS         273 

mercial  paper  actually  owned  by  the  person  ne- 
gotiating the  same),  of  any  one  borrower  who  is 
indebted  to  such  State  bank  in  an  amount  greater 
than  10  per  cent,  of  the  capital  and  surplus  of 
such  bank.  A  member  State  bank  is  required  to 
furnish  a  Federal  Reserve  bank  with  a  certificate 
to  this  effect,  before  a  note,  draft,  or  bill  of  ex- 
change will  be  rediscounted. 

(d)  A  member  State  bank  is  now  required  to 
make  reports  of  condition  and  of  the  payment  of 
dividends  to  the  Federal  Reserve  bank  of  its  dis- 
trict, not  less  than  three  such  reports  being  required 
annually.  Member  State  banks  were  formerly  re- 
quired to  make  such  reports  to  the  Comptroller  of 
the  Currency  at  least  five  times  each  year. 

(e)  A  member  State  bank  is  subject  to  examina- 
tion under  direction  of  the  Federal  Reserve  Board, 
but  is  not  subject  to  the  provisions  of  the  Revised 
Statutes  requiring  two  examinations  annually  by 
examiners  appointed  by  the  Comptroller  of  the 
Currency.  Examinations  by  State  authorities  and 
reports  thereon  will  be  accepted  in  lieu  of  examina- 
tions under  direction  of  the  Federal  Reserve  Board, 
if  approved  by  directors  of  Federal  Reserve  bank. 

HOW  ARE  THESE  BANKS  CONTROLLED? 
— The  control  of  each  Reserve  bank  is  vested  in 
a  Board  of  Directors  composed  of  nine  members, 
of  whom  six  are  elected  by  the  member  banks. 
Three  of  this  six  must  be  bankers,  and  the  other 
three  must  represent  the  industrial,   commercial 


274         BANKING    FOR    BEGINNERS 

and  agricultural  interests  of  the  district.  The  re- 
maining three,  of  whom  two  must  be  men  of  bank- 
ing experience,  are  appointed  by  the  Federal  Re- 
serve Board.  In  electing  directors  the  smallest 
member  bank  has  a  single  vote,  the  same  as  the 
largest  member  bank. 

THE  FEDERAL  RESERVE  BOARD.— The 
Federal  Reserve  Board  is  composed  of  the  Secre- 
tary of  the  Treasury  and  the  Comptroller  of  the 
Currency,  ex-officio,  and  five  other  members  ap- 
pointed by  the  President.  This  board  has  juris- 
diction over  the  twelve  Reserve  banks  and  is  in 
almost  continual  session  in  Washington.  The  five 
appointed  members  have  ten-year  terms  and  sal- 
aries of  $12,000  per  annum.  The  powers  of  the 
Federal  Reserve  Board  over  the  Federal  Reserve 
banks  are  very  extensive  and  altogether  discre- 
tionary, including  the  right  to  examine  their  books 
and  accounts,  to  require  the  publication  of  state- 
ments, to  compel  one  Reserve  bank  to  rediscount 
for  another,  to  suspend  reserve  requirements,  to 
grant  the  right  to  issue  notes,  to  define  the  character 
of  paper  to  be  discounted,  to  fix  rates  of  discpunt, 
to  compel  purchase  of  United  States  bonds,  etc. 
Rediscounting  occurs  when  a  bank  finds  itself  in 
need  of  funds,  and  takes  some  of  the  paper  that  it 
has  discounted  for  customers  to  some  other  bank 
and  discounts  it;  that  is,  "rediscounts"  it.  Of 
1  course,  the  bank  must  endorse,  if  the  paper  has  been 
so  drawn  as  to  require  it.     When  member  banks 


BANKING    FOR    BEGINNERS         275 

discount  at  a  Federal  Reserve  bank,  the  process 
is  also  known  as  "rediscounting." 

LOANS  BY  THE  RESERVE  BANKS.— The 
Reserve  banks  use  their  funds  (1)  in  lending  to 
member  banks  and  to  municipalities  and  the  United 
States  Government,  (2)  in  buying  in  the  open  mar- 
ket commercial  drafts  accepted  or  endorsed  by 
banks,  thereby  coming  into  direct  touch  with  busi- 
ness men  and  producers.  They  are  permitted  to 
discount  90-day  notes  or  drafts,  the  proceeds  of 
which  have  been  or  are  to  be  used  for  agricultural, 
industrial  or  commercial  purposes ;  and  six  months' 
agricultural  paper;  and  90-day  acceptances  in  for- 
eign trade;  all  bearing  the  endorsement  of  mem- 
ber banks.  They  can  buy  and  sell  United  States, 
State  or  municipal  bonds  or  notes  and  gold  bullion 
at  home  or  abroad  in  the  open  market.  Member 
banks  having  a  capital  of  $1,000,000  or  more  are 
authorized  to  establish  foreign  branches,  and  all 
National  banks  not  in  central  reserve  cities  are  per- 
mitted to  loan  a  limited  amount  on  the  security 
of  land.  As  amended  June  21,  1917,  the  Federal 
Reserve  Act  now  permits  any  member  bank,  under 
regulations  prescribed  by  the  Federal  Reserve  /  * 
Board,  which  shall  apply  to  all  banks  alike,  to  '-r; 

accept  foreign  and  domestic  bills  to  an  amount 
equal  to  its  capital  and  surplus.  The  amendment 
prohibits  member  banks  from  accepting  bills  grow- 
ing out  of  domestic  transactions  to  an  amount 
greater  than  50  per  cent,  of  its  capital  and  surplus. 


276 


BANKING    FOR    BEGINNERS 


4M%i 


RESERVES  OF  THE  FEDERAL  RESERVE 
BANKS. — Federal  Reserve  banks  are  required  to 
hold  as  reserves  against  deposits,  35%  in  gold  or 
lawful  money,  and  against  notes,  40%  in  gold.      -  -^ 

NOTE  ISSUES  PROVIDED  FOR  BY  THE 
FEDERAL  RESERVE  ACT.  —  The  note  issues 
provided  for  by  the  act  of  1913  are  of  two  kinds: 

(1)  Federal  Reserve  Notes:  These  are  obliga- 
tions of  the  United  States  loaned  to  the  Federal 
Reserve  banks  and  secured  100%  by  comrnercial 
paper  deposited  with  the  Federal  Reserve  Agent 
(an  official  of  the  Federal  Government),  40%  or 
more  by  a  bank  reserve  of  gold  (of  which  at  least 
5%  must  be  with  the  United  States  Treasury),  and 
a  first  lien  upon  the  assets  of  the  issuing  bank. 
These  are  redeemable  in  gold  at  the  United  States 
Treasury  and  in  gold  or  lawful  money  at  any 
Federal  Reserve  bank,  and  they  are  receivable 
by  all  National  banks  for  taxes,  customs  and  other 
public  dues.  Redeemed  notes  are  promptly  sent 
to  the  bank  of  issue.  They  are  retired  by  deposits 
with  the  Federal  Reserve  Agent  of  similar  notes  or 
of  lawful  money.  The  amount  of  this  currency 
issued  varies  in  accordance  with  the  business  needs 
of  the  country,  thus  securing  the  elasticity  which 
the  old  system  did  not  provide.  As  amended  June 
)21,  1917,  gold  or  gold  certificates,  as  well  as  com- 
I  mercial  paper,  are  accepted  as  collateral  for  Federal 
Reserve  notes.  The  gold  or  gold  certificates  held 
as  such  collateral  under  the  new  law  will  be  counted 


BANKING    FOR    BEGINNERS         277 

as  part  of  the  gold  reserve  which  the  Federal  Re- 
serve bank  is  required  to  maintain  against  its  notes 
in  actual  circulation.  This  change  will  result  in 
all  outstanding  Federal  Reserve  notes  being  shown 
as  a  liability  of  the  Federal  Reserve  bank  and  of 
gold  or  gold  certificates  deposited  with  the  Federal 
Reserve  agent  being  included  among  the  assets  of 
the  bank.  There  is  a  further  provision  that  gold 
deposited  with  the  Treasurer  of  the  United  States 
for  the  purpose  of  redeeming  outstanding  Federal 
Reserve  notes  shall  be  considered  as  if  collateral 
security  on  deposit  with  the  Federal  Reserve  agent. 
There  is  another  provision  requiring  Federal  Re- 
serve notes,  gold,  gold  certificates  and  lawful 
money  issued  to  or  deposited  with  any  Federal 
Reserve  agent  to  be  held  in  the  joint  custody  of 
himself  and  the  Federal  Reserve  bank  under  regu- 
lations to  be  prescribed  by  the  Board. 

(2)  Federal  Reserve  Bank  Notes:  Notes  may 
also  be  issued  by  Federal  Reserve  banks  upon  the 
deposit  of  United  States  bonds  with  the  United 
States  Treasurer.  These  notes  possess  the  same 
form,  and  are  issuable  upon  the  same  terms,  as 
National  bank  notes  are  now  issued.  The  Federal 
Reserve  Board  may  compel  Federal  Reserve  banks 
to  buy  deposited  United  States  bonds  at  par  and 
assume  the  note  liability  of  existing  National  banks 
at  a  rate  not  over  $25,000,000  a  year,  provided  the 
National  banks  ask  to  have  their  bonds  taken  over. 

REQUIRED  RESERVES.— Under  the  Federal 


278         BANKING    FOR    BEGINNERS 

Reserve  Act  less  reserve  is  required  against  time 
deposits  than  against  demand  deposits.  Demand 
deposits  within  the  meaning  of  the  act  comprise 
all  deposits  payable  v^ithin  thirty  days,  and  time 
deposits  comprise  all  deposits  payable  after  thirty 
days,  all  savings  accounts  and  certificates  of  deposit 
which  are  subject  to  not  less  than  thirty  days  notice 
before  payment,  and  all  postal  savings  deposits. 
Every  bank,  banking  association  or  trust  company 
which  is  or  which  becomes  a  member  of  any  Federal 
Reserve  bank  shall  establish  and  maintain  reserve 
balances  with  its  Federal  Reserve  bank  as  follows : 

(a)  If  not  in  a  reserve  or  central  reserve  city, 
as  now  or  hereafter  defined,  it  shall  hold  and  main- 
tain with  the  Federal  Reserve  bank  of  its  district 
an  actual  net  balance  equal  to  not  less  than  7  per 
cent,  of  the  aggregate  amount  of  its  demand 
deposits  and  3  per  cent,  of  its  time  deposits. 

(b)  If  in  a  reserve  city,  as  now  or  hereafter 
defined,  it  shall  hold  and  maintain  with  the  Federal 
Reserve  bank  of  its  district  an  actual  net  balance 
equal  to  not  less  than  10  per  cent,  of  the  aggre- 
gate amount  of  its  demand  deposits  and  3  per  cent, 
of  its  time  deposits. 

(c)  If  in  a  central  reserve  city,  as  now  or  here- 
after defined,  it  shall  hold  and  maintain  with  the 
Federal  Reserve  bank  of  its  district  an  actual  net 
balance  equal  to  not  less  than  13  per  cent,  of  the 
aggregate  amount  of  its  demand  deposits  and  3  per 
cent,  of  its  time  deposits. 


BANKING    FOR    BEGINNERS         279 

The  required  balance  carried  by  a  member  bank 
with  a  Federal  Reserve  bank  may,  under  the  regu- 
lations and  subject  to  such  penalties  as  may  be  pre- 
scribed by  the  Federal  Reserve  Board,  be  checked 
against  and  withdrawn  by  such  member  bank  for 
the  purpose  of  meeting  existing  liabilities;  pro- 
vided, however,  that  no  bank  shall  at  any  time  make 
new  loans  or  shall  pay  any  dividends  unless  and 
until  the  total  balance  required  by  law  is  fully 
restored. 

In  estimating  the  balances  required  by  the  act 
the  net  difference  of  amounts  due  to  and  from  other 
banks  shall  be  taken  as  the  basis  for  ascertaining 
the  deposits  against  which  required  balances  vnth 
Federal  Reserve  banks  shall  be^eterminej^. 

EXCHANGE  OR  COLLECTION.  —  As 
amended  June  21,  1917,  the  Federal  Reserve  Act 
provides  that  any  Federal  Reserve  bank  may  re- 
ceive from  any  of  its  member  banks,  and  from  the 
United  States,  deposits  of  current  funds  in  lawful 
money.  National  bank  notes,  Federal  Reserve  notes, 
or  checks  and  drafts  payable  upon  presentation, 
and,  also,  for  collection,  maturing  notes  and  bills, 
or,  solely  for  purposes  of  exchange  or  of  collection, 
may  receive  from  other  Federal  Reserve  banks 
deposits  of  current  funds  in  lawful  money.  National 
bank  notes,  or  checks  upon  other  Federal  Reserve 
banks,  and  checks  and  drafts  payable  upon  presen- 
tation within  its  district,  and  maturing  notes  and 
bills  payable  within  its  district;   or,  solely  for  the 


280         BANKING    FOR    BEGINNERS 

purposes  of  exchange  or  of  collection,  may  receive 
from  any  nonmember  bank  or  trust  company  de- 
posits of  current  funds  in  lawful  money,  National 
bank  notes,  Federal  Reserve  notes,  checks  and 
drafts  payable  upon  presentation,  or  maturing  notes 
and  bills;  provided  such  nonmember  bank  or  trust 
company  maintains  with  the  Federal  Reserve  bank 
of  its  district  a  balance  sufficient  to  offset  the  items 
in  transit  held  for  its  account  by  the  Federal  Re- 
serve bank;  provided,  further,  that  nothing  in  this 
or  any  other  section  of  this  act  shall  be  construed 
as  prohibiting  a  member  or  nonmember  bank  from 
making  reasonable  charges,  to  be  determined  and 
regulated  by  the  Federal  Reserve  Board,  but  in  no 
case  to  exceed  lOxents  per  $100  or  fraction  thereof, 
based  on  the  total  of  checks  and  drafts  presented 
at  any  one  time,  for  collection  or  payment  of  checks 
and  drafts  and  remission  therefor  by  exchange  or 
otherwise;  but  no  such  charges  shall  be  made 
against  the  Federal  Reserve  banks. 


TOPICAL  INDEX 


Topic  Page 

Acceptance  and  Carrier's  Lien 178 

Acceptance  Form   79 

Acceptances    78,  80 

Accommodation    Notes    Ill 

Adding  Machine  Operation 22 

Agency   197  to  201 

Analysis  of  Assets 250 

Analysis  of  Liabilities   249 

Bank  Accounting 246 

Bank  Administration    19 

Bank  Discount  113 

Bank  Ethics    60 

Bank  Organization   18 

Bank  Organization  Chart   20 

Banking  Before  Federal  Reserve  System 265 

Basic  Books 252 

"Batch"  or  "Block"  System 234 

Beginners'  Instruction 5,  9 

Bill  of  Exchange 66,  67,  68 

Bill  of  Exchange  Form  61 

Bill  of  Lading  Forms 174,  176 

Bill  of  Sale  Forms   216 

Bills  of  Lading   173,  178 

Bills  of  Lading  as  Collateral  for  Loans 179 

Bills  of  Lading  with  Draft  Attached 179 

Bills  of  Sale    215 

"Block"  System  Distribution  Sheet 235 

Cash  Discount    192 

Cashier's  Checks    148 

Certificate  of  Deposit  Form 152 

Certificates  of  Deposit  151 

281 


282         BANKING    FOR    BEGINNERS 
Topic  Page 

Certified  Checks  147 

Chattel  Mortgages 105 

Chattel  Mortgages  on  Cattle 107 

Check  and  Stub  Form 134 

Check  Books  and  Voucher  Checks 135 

Check  Defined 135 

Checks,  Correctly  and  Incorrectly  Drawn 141 

Checks  on  Other  Banks  Form 138 

Checks  Payable  to  Bearer 143 

Checks  Post-Dated    144 

Checks  Properly  Drawn  139 

Clearing  Country  Checks 156 

Clearing  House  Statement 154 

Clearings  and  Clearing  Houses 153 

Coin  or  Bullion  Sent  by  Express 170 

Collateral  Agreement   102 

Collateral  Loans    109 

Collateral  Note  Forms 98,  99,  100 

Collateral  Receipt    103 

Collateral  Record    104 

Collateral  with  Notes  97 

Collection  Department  242 

Competent  Parties 43 

Condensed  Bank  Statement   247 

Consideration   53,  195 

Contract  Assignment    58 

Contract  Definition   33 

Contract  Discharge    58 

Contract  Essentials    39 

Contract,  Express  Versus  Implied 35 

Contract  Forms 37,  38 

Contract,  Formal  Versus  Informal 35 

Contract  or  Promise  to  Pay  Money 36 


BANKING    FOR    BEGINNERS  283 
Topic                                                         Page 

Contract  Liability  of  Third  Parties 57 

Contract    Under    Seal    36 

Contract  to  Perform  Work 34 

Contract,  Void  Versus  Voidable 38 

Contracts  and  How  Interpreted   57 

Contracts  That  Must  Be  in  Writing 55 

Corporation  Dissolution    215 

Corporation  Management    211 

Corporation  Stock  and  Dividends 209 

Corporation  Stockholders    213 

Corporations    208 

Counter  Check  Form   136 

Counter  Checks    137 

Country  Bank  Department   255 

Credit  Department    245 

Credit  for   Travelers    166 

Credit  Memorandums    192 

Debits  and  Credits 251 

Deeds    220 

Deposit  Books  and  Duplicate  Slips  117 

Deposit  Defined 117 

Deposit  Ticket  Forms 119,  120,  124 

Deposit  Tickets    117 

Deposits  Described    130 

Deposits,  Joint  and  Alternate 132,  133 

Development  of  Individual  Capacity    15 

Discharge  by  Release 58 

Discount    Books    Forms    112,  114 

Discount  Records    115 

Dishonor   Notice    81 

Draft  Definition    61 

Draft  Dishonored   81,  83 

Draft  Forms   62,  69,  79 


284         BANKING    FOR    BEGINNERS 
Topic  Page 

Draft  Notice  of  Irregularities   64 

Draft,  Parties  to   63 

Draft  Protested    83 

Draft  Register  Form    72 

Drafts,  Contents  to  be  Negotiable 65 

Drafts  Described    69 

Drafts  on  Customer's  Application 70 

Drafts  Used  in  Commerce 63 

Duplicate  Deposit  Tickets 127 

Duties  and  Responsibilities  of  Banks   225 

Elevator  Receipt  Form    186 

Elevator  Receipts  185 

Endorsement  of  Checks       149 

Endorsement  Stamps    172 

Endorsements   71,  75,  76,  78,  89 

Exchange  of  Collection   279 

Express  Money  Orders   170 

Federal  Reserve  Act  Note  Issues 276 

Federal  Reserve  Bank    Reserves    276 

Federal  Reserve  Banks   271,  273 

Federal  Reserve  Bank  Loans    275 

Federal  Reserve  Board    274 

Federal  Reserve  System    270 

Fidelity  Bonds   223 

Functions  and  Instruments 17 

General  Ledger  Department 254 

Gold   Certificates    267 

Guaranty  and  Suretyship    221 

Guaranty  Form    55 

Honesty  as  an  Asset 12 

Illegality  of  Contract   41 

Importance  of  Study  of  Contracts   33 

Individual  Bookkeeper's   Settlement    263 


BANKING    FOR    BEGINNERS  285 
Topic                                                          Page 

Individual  Ledger  Department    257 

Individual  Ledger  Form   256 

Insurance  Policies  223 

Interest    93 

Instruction  for  Beginners   5 

Invoices    182 

Joint  Makers  of  Notes 92 

Joint-Stock  Companies    208 

Leases  217 

Legal   Object  of  Contract    40 

Legal  Tender    90 

Letter  of  Credit  Forms 160,  162 

Letters  of  Credit  158 

Loan  or  Discount  Department 243 

Loans  and  Discounts  Statement  108 

Maturity  of  Notes  93 

Meaning  of  a  Bank  Statement 248 

Messengers 9,  11 

Messengers  and  Other  Bank  Men 8,  23 

Minutes  of  Directors'  Meeting  Form 214 

Money — Legal  Tender  90 

Money  Sent  by  Telegraph 170 

Mortgages    218 

National  Bank  Notes   266 

Needs  of  the  Beginner 9 

Note  Teller   130 

Note  Teller's  Department  240 

Notes  for  Accommodation   Ill 

Notes  Lost  or  Stolen  110 

Notice  by  Bank  of  Drafts  Drawn 74 

Notice  of  Overdraft  Sent  to  Depositor 145 

Notice  of  Unpaid  Draft  with  Bill  of  Lading 180 

Offer  and  Acceptance 45,  46,  50 


286         BANKING    FOR    BEGINNERS 
Topic  Page 

Option  Agreement 49 

Orders  for  Goods 193 

Organization  of  Board  of  Directors 212 

Overdrafts    144 

Paper  Money  Used  in  the  United  States 267 

Partial  Payment  of  Notes 97 

Partnership    203  to  207 

Pass-Books    118 

Paying  Checks    143 

Paying  Teller's  Department    236 

Paying  Teller's  Settlement   Form    238 

Place  of  Payment  of  Notes   95 

Post  Office  Money  Orders  168 

Power  of  Attorney   202 

Power  of  Attorney  Form 200 

Power  to  Vote  Stock   210 

Preliminary  Study  and  Cycle  Course 7 

Presentment  of  Checks   150 

Promissory  Note,  Definition  and  Uses 85,  87 

Promissory  Note  Endorsement  and  Negotiation .....  89 

Promissory  Note  Forms   86,  87,  88 

Promissory  Note  Negotiation    89 

Protest  Certificate  Form   82 

Proxy    210 

Reality  of  Consent 51 

Receipt  for  Statement  of  Account  Form 128 

Receipt  Forms 183,  184,  185 

Receipts    183 

Receiving  Teller  and  Depositors 128 

Receiving  Teller's  Department    228 

Receiving  Teller's  Settlement    233 

Receiving  Teller's  Settlement  Form    232 

Reconcilement  Statement  Form   260 


BANKING    FOR    BEGINNERS  287 
Topic                                                          Page 

Registered  Mail   167 

Required  Reserves   277 

Rights  of  Check  Holders 142 

Routine  Work    21 

Sending  Goods  by  Express 181 

Settlement  of  Balances 155 

Signature  Card  Forms 121,  122,  123,  125 

Silver  Certificates    268 

Statements  of  Account 126,  127,  191 

Stop-Payment  Order  Form 146 

Stop-Payment   Orders    147 

Subordinate   Records    253 

System  in  Education  14 

Team  Play   13 

Trade  Discount    192 

Transit  Department    231 

Travelers'  Check  (A.  B.  A.)  Form 164 

Travelers'  Checks    165 

Treasury  Notes  of  1890 268 

Trust  Deposits   135 

United  States  Banking  System  on  June  30,  1914 269 

United  States  Notes    268 

United  States  Postal  Service 166 

Universal  Numerical  System   157 

Vault  Cash    237 

Verbal  Promises    196 

Voucher  Check   Form    140 

Voucher  Checks  137 

Warehousemen's  Obligations  and  Rights 189 

Warehouse  Receipt  Forms   188,  190 

Warehouse  Receipts    185,  187 


Efficiency  In  Banking 

Organized  Education 

THE  AMERICAN  INSTITUTE  OF 
BANKING  Section  of  the  American  Bankers 
Association  is  devoted  to  the  education  of  bankers 
in  banking  and  the  estabhshment  and  maintenance 
of  a  recognized  standard  of  banking  education  by 
means  of  official  examinations  and  the  issuance  of 
certificates  of  graduation  based  upon  a  Standard 
Course  of  Study  provided  by  the  Institute. 

Institute  Chapters 

In  suitable  Cities  and  suitable  States  bank 
officers  and  employees  are  organized  in  Chapters 
for  educational  work  in  classes  or  by  correspondence 
according  to  circumstances.  Students  outside  of 
City  and  State  Chapters  are  associated  in  the 
Correspondence  Chapter.  Chapter  organization 
and  education  are  thus  made  uniform  and  universal. 

American  Institute  of  Banking 

Five  Nassau  Street  New  York  City 


VlA 


UNIVERSITY  OF  CALIFORNIA  AT  LOS  ANGELES 

THE  UNIVERSITY  LIBRARY 
This  book  is  DUE  on  the  last  date  stamped  below 


&  m'mn 

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"Tim 

MAY  1  0 198? 

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1917       beginners. 


DEMCO  234N 


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VlA 


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KG 
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AA    001  115  820 


